The Importance of Diversification
We cannot overemphasize the importance of having a well balanced and diversified mutual fund portfolio. But what does this exactly mean? A total investment of between $5000 and $6000 could make your portfolio fairly diversified. Even the mutual funds
themselves can be diversified in a variety of investments. The mutual funds that are better diversified tend to do better than the non-diversified funds. The same is true with your overall portfolio. In short, diversification provides insurance. Gener
ally, mutual fund investors tend to be conservative as the graph below illustrates. But they do vary the types of invesments that they are involved with at different times in life, as the table below depicts.
Diversification of Your Portfolio at Different Times in Life
Amount of Total Portfolio (in %)
EARLY TO MID CAREER
- Aggressive growth funds: 15-20%
- Growth funds: 30-50%
- Fixed-income (bond) funds: 25-35%
- International: 10-15%
PRE-RETIREMENT
- Aggressive growth funds: less than 10%
- Growth funds: 30-35%
- Fixed income (bond) funds: 45-50%
- International funds: less than 10%
RETIREMENT
- Growth funds: 30-35%
- Fixed income (bond) funds: 45-50%
- International funds: less than 10%
- Money market funds: less than 10%
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