Diversification & Asset Allocation
There are two strategies you may employ to help protect against risk as you invest.
Investment diversification is the strategy of spreading your investments between
types of securities, markets, industries, etc. For example, to diversify a stock
portfolio you would invest in large and small company stocks across many different
industries. Bond markets also offer an array of choices to diversify such as issuer,
maturity length and credit rating. Mutual funds offer the benefit of diversification
with an asset class or fund objective. Diversifying your investments is not a guarantee
against loss. It is an investment strategy that allows you to reduce your risk exposure
to a specific type of investment or market condition, by not putting all your holdings
in one place.
Asset allocation takes the principle of diversification one step further. Asset
allocation means diversifying your money among asset classes, such as stocks, bonds,
and cash. The value of allocating among different asset classes is that each class
tends to react differently to the economy as a whole. Asset allocation does not
guarantee against loss; rather it is a method used to manage risk.
With the guidance from a Registered Representative, you can determine what percentage
of your portfolio to allocate in each asset class. Keep in mind, your allocation
may be different for your short-term and long-term goals. In other words, you may
choose a different strategy for retirement than for saving to buy a home.
In addition, investments that are performing well above or below your expectations
may create an unbalanced portfolio, often times resulting in an investment mix that
is inconsistent with your original objectives. That's why it's important to regularly
meet with your Citizens Investment Services Registered Representative to help ensure
that your portfolio is properly diversified, balanced and performing in accordance
with your investment goals.