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. Generally, 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

EARLY TO MID CAREER Amount of Total Portfolio (in %)
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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