InvestRight Principle #4: Why Diversify? Because Winners Rotate

InvestRight Principle #4

1. Know what you're investing for.

2. Make paying yourself a priority.

3. Make tax-smart investments.

4. Diversify your portfolio.

> Understanding the various asset classes

> Establishing the right asset allocation mix makes all the difference

> Diversify within each asset class – Stocks

> Diversify within each asset class – Bonds

> Why diversify?

> Take the long view

> Portfolio Remodel

5. Choose good investments.

	Something to Consider
	Rebalancing doesn't always mean buying and selling funds. You can also fill in the gaps with future investments.

Nothing illustrates the need for diversification better than the chart below. See how various asset classes performed on a year-by-year basis over a twenty-year period (1989 through 2008). You'll find the best performing asset class at the top of each column. As you can see, it's impossible to predict which investment category will perform best at any point in the future. As a diligent investor, you'll want to own funds across multiple categories.

Deciding how to allocate your assets is an important investment decision.

It's your asset allocation that really determines how your portfolio will perform in the long run. Remember, it's critical to establish an asset allocation plan, and it's just as critical to maintain one over time.

See why it's important to rebalance your portfolio over time.

Have you looked at your portfolio lately? Unless you monitor and adjust your portfolio periodically, your mix of assets can shift out of balance. For example, after a bear market for stocks, your allocation in bonds will likely be too high relative to stocks.

Past performance is no indication of future results.
Stocks are represented by the S&P 500 Index, and bonds are represented by Barclay's Capital U.S. Aggregate Bond Index for bonds. The S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market-value weighted index with each stock's weight in The index proportionate to its market value. The Barclays Capital U.S. Aggregate Index includes bonds from the Treasury, government-related, corporate, agency, mortgage-backed securities, and asset-backed securities sectors. You cannot invest directly in an index.
Source: Morningstar EnCorr Database

Next: Take the long view.

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