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

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.

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