A Little Bit of This, A Little Bit of That

Volume 2 Issue 2008

You can control how much you save for retirement and where you invest your money, but there’s one thing you can’t control — the ups and downs of the market. So you’ll have to do whatever it takes to help your retirement portfolio hold its own during market declines.

There’s no way to know for sure when security values will rise or fall, so assembling a diversified1 mix of investments may be your best defense against market fluctuations. But what sort of mix qualifies as “diversified”?

Diversify in the Stock Arena.

Creating a diversified portfolio means spreading your investment dollars among many different kinds of investments so that no single investment type or investing style dominates your portfolio. You may think that investing in one or two stock mutual funds2 will provide all the stock diversification you need, since each fund holds multiple stocks. But there’s really more to it than that. Consider choosing a mix of funds containing large-, mid-, and small-cap stocks from corporations in a variety of industries and economic sectors in the U.S. and abroad.3 That way, if investments in one particular industry or segment of the economy are lagging behind, other investments may be performing well enough to limit the damage.

Bonds — Another Safety Net.

Historically, stock returns have tended to outpace bond returns over the long term. But, in some years, bonds have earned higher returns than stocks. (Past performance is no guarantee of future results.) Adding bonds or bond mutual funds to your portfolio allows you to take advantage of strong bond markets when they occur. It may also help cushion your portfolio against major losses when equities aren’t performing well, since stock and bond prices don’t necessarily move in lockstep. To diversify your bond holdings, consider including a variety of U.S. government, U.S. corporate, and international bonds in your portfolio.

1 Diversification does not ensure a profit or protect against loss in a declining market.
2 You should consider a mutual fund’s investment objectives, charges, expenses, and risks carefully before you invest. The fund’s prospectus, which can be obtained from your financial representative, contains this and other information about the fund. Read the prospectus carefully before you invest or send money. Shares, when redeemed, may be worth more or less than their original cost. Prices of fixed income securities may fluctuate due to interest rate changes. Investors may lose money if bonds are sold before maturity.
3 The risks of investing internationally include changes in currency rates, foreign taxation, differences in auditing and financial standards, and other risks.