Diversification is a big deal. Here’s why.
Did you hear the one about the man in his early 60’s who had been saving diligently for retirement, had his entire retirement plan invested in the stock market – and then the stock market crashed?
Obviously, it’s no joke.
If you’re saving money for retirement, congratulations, smart move. Chances are you’re making decisions about how to invest that money and you’ve heard you need to diversify. Want to know what that means and why it’s important—in simple language?
Although lengthy books have been written about diversification, we’ll boil it down to this statement: Diversification means putting your money in a variety of different types of investments—sometimes called assets—to help reduce risk.
Notice, please, we didn’t say diversification eliminates risk. That’s impossible. But it can help reduce it.
That’s because if you have a variety of investments, good performance in one can offset less desirable performance in another. Keep in mind diversification does not assure a profit or protect against market loss.
How do you diversify? Good question
