| It's a phrase you have heard over and over, | | | | investment horizon or those that can tolerate |
| "diversify your portfolio", but what does it mean | | | | more risk. If you are already retired and are |
| to someone with little or no financial background? | | | | starting to live off savings, there are conservative |
| The world of stock markets, volatility and | | | | asset allocation funds that would be appropriate |
| portfolios in general may not be all that familiar. | | | | for these times as well. The key to success in |
| Fortunately, in this day and age there are ways | | | | diversification isn't just investing in different |
| to diversify that don't require you to be all that | | | | sectors of the market but making sure your |
| savvy when it comes to the stock market. There | | | | breakdown of stocks and bonds is correct |
| are a number of investments to choose from | | | | depending on your age and when you are going |
| that do most of the diversification work for you. | | | | to need the money. If you are still unsure what I |
| This article shows the many ways to diversify | | | | am talking about, maybe the next investment |
| your portfolio, going from the most difficult to the | | | | option is for your.EasyThe easiest and most |
| easiest.Most DifficultIf you feel really adventurous, | | | | diversified investment comes in the form of |
| you have lots of free time and loads of cash | | | | all-in-one funds, sometimes called lifecycle or |
| available, you can purchase your own individual | | | | retirement funds. Where most mutual funds are |
| securities. The only time I would recommend this | | | | made up of different stock, bond and |
| is if you are very savvy when it comes to the | | | | fixed-income securities, all-in-one funds are made |
| stock market and you are willing to take the risk. | | | | up of different mutual funds. For example, let's |
| If you fit this description, I doubt you will be | | | | look first at a standard mutual fund, the T. Rowe |
| reading this article. The expense involved in each | | | | Price Mid-Cap Value Fund (TRMCX). As of 3/31 |
| individual trade (it varies depending on your | | | | 2006 it was made up of about 65 different |
| investment company) makes it difficult to achieve | | | | securities, mostly stocks. This mutual fund bought |
| the diversification necessary without spending a | | | | stock in companies such as Campbell Soup, |
| lot. Individual securities are fine if you have money | | | | International Paper, and Intuit, to name a few. |
| set aside for that purpose only, but a few | | | | While 65 securities may seem like a lot if you go |
| individual stocks or bonds isn't probably the best | | | | and try to make that many purchases on your |
| place to put your entire investment portfolio since | | | | own, it is still a very limited piece of the market. |
| this would not be diversified.DifficultCurrently, | | | | If you put all your money into T. Rowe Price |
| mutual funds seem to be the more convenient | | | | Mid-Cap Value Fund, you would not be considered |
| route when it comes to investing for the long | | | | diversified.Now let's look at an all-in-one fund, this |
| term. When you invest in a standard mutual fund, | | | | time from Fidelity, the Freedom 2040 fund. Right |
| you are spreading your money across 50-1000 | | | | now, this fund is mostly in stocks. It is meant for |
| different securities without having to buy them | | | | individuals who are looking to retire around the |
| individually yourself. The mutual fund manager | | | | year 2040. As of 3/31/2006 it was made up of |
| takes your money, puts it into the pool with | | | | 23 different mutual funds. The combination of all |
| everyone else investing in the fund and purchases | | | | 23 mutual funds ends up being over 4000 stocks, |
| stocks, bonds and fixed-income products for you. | | | | bonds and fixed-income products. These 4000 |
| While it is much more diversified than buying | | | | securities cover all areas of the stock market |
| individual securities yourself, putting all your money | | | | including mutual funds such as Fidelity Small Cap |
| in one mutual fund generally isn't enough to be | | | | Growth Fund, Fidelity Overseas Fund and Fidelity |
| diversified. In order to diversify through mutual | | | | Blue Chip Growth Fund, each of which invest in |
| funds it is best to choose a variety of mutual | | | | very different types of stocks. If you put all your |
| funds, those that cover large, medium and small | | | | money in the Fidelity Freedom 2040 fund you |
| companies, international securities, bonds, | | | | would be diversified.The other nice feature of |
| fixed-income products, and funds that cover | | | | all-in-one funds is that they become less |
| different parts of the market such as technology, | | | | aggressive as you age. They are working toward |
| healthcare, real-estate, etc. For a beginner, even | | | | a specific timeline and gradually have less and less |
| choosing your own mutual funds can be a | | | | in stocks as you get closer to retirement. This is |
| daunting task. If this still seems a little too difficult, | | | | probably the best feature for less savvy |
| read on.ModerateFor even more simplicity in | | | | investors. Even the asset allocation funds spoken |
| choosing investments, consider an asset allocation | | | | of above need to be adjusted here and there so |
| fund. While most mutual funds spread your | | | | that they are more in line with your retirement |
| money over securities in a certain sector of the | | | | goal. This would mean taking money out of a |
| market, asset allocation funds spread it more | | | | more risky asset allocation fund and placing it in a |
| widely and completely over several different | | | | less risky option as you near retirement age. It is |
| sectors. It is not uncommon for an asset | | | | possible; it just takes more work from you. |
| allocation fund to invest in almost 2000 different | | | | All-in-one funds do this work for you.While it would |
| stocks, bonds and fixed-income products where | | | | be nice to have the easiest route also be the one |
| an average mutual fund invests in about 300.The | | | | that pays the highest yield, there is no guarantee |
| other nice feature of most asset allocation funds | | | | of that. Any of the above options could end up |
| is they often give you the choice of risk level. If | | | | having the highest return depending on the |
| you are nearing retirement and will need your | | | | securities or mutual funds chosen and how they |
| money in the next 10 years, you could choose an | | | | perform. When it comes to investing, there are |
| asset allocation fund that is 50-60% in stocks, | | | | no guarantees except this one...not diversifying will |
| 40% in bonds, and the rest in fixed-income. You | | | | almost always hurt you in the long run. |
| still have some growth potential, but if the stock | | | | Diversification is the key to any good investment |
| market goes south, your bonds may help to | | | | strategy. Now it is just a question of how you will |
| stabilize the account. This can also be a good | | | | go about it.Copyright 2006 Emma SnowEmma |
| choice for someone who can't tolerate much risk, | | | | Snow is a writer who specializes in financial |
| even if they have a long time until | | | | planning. She has worked in the financial industry |
| retirement.There are also more aggressive asset | | | | for over eight years. |
| allocation funds for those with a longer | | | | |