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Ten Steps for a Sound and Secure Retirement
6. Broadly Diversity Your Investments.
- Broadly diversify as a way of curbing investment losses. Set an "allocation plan", deciding in advance how to split your savings between cash, bond, stock and real estate funds.
- Use high-quality mutual funds for broad diversification and professional stewardship.
- Use traditional indexes and new "fundamental" indexes for high diversification and exposure in whole segments of the market.
- Specifically diversify so that no single investment represents more than 10% of your total.
- Enhance your diversification by holding non-U.S. investments. Use funds or indexes that have the flexibility to invest in a broad range of different non-U.S. markets.
- Rebalance your portfolio once a year. Go back to your original "allocation plan" targets.
Interview
Advice from experts on using cash, bonds, stock, real estate, mutual funds, indexes and foreign investments to grow your nest egg. - Cash, bonds, stock, real estate: What to consider when diversifying your investments. Step by step with Ken Little.
- Mutual Funds: Mellody Hobson tells us why they're so popular.
- Indexes: Are they the best and lowest cost investment product? Burton Malkiel thinks they are.
- Foreign investments: Is there greater growth internationally? Jeremy Siegel and Priscilla Parke offer their insights.
- View our downloadable Retirement Terms and Tools for definitions of these assets.
Quote
"It is a bet on the future of America and it is a bet on your own future. Over the long run there has never been a 20-year period when you would have lost money in a diversified portfolio of large company stocks with dividends reinvested. Even adjusted for inflation. That is why the stock market in a diversified portfolio is a critical ingredient in investing for your retirement." - Syndicated financial columnist Terry Savage
"You cannot think about only buying U.S. stocks. The United States market today is less than 50% of the world stock market. And that fraction is certainly going down over time. So if you really want to capture the whole world market and protect yourself from the declining value of the dollar, you want to be internationally diversified." - Wharton finance professor Jeremy Siegel.
Tools and Resources
The Importance of Diversification
http://www.sec.gov/investor/pubs/assetallocation.htmSetting an Allocation Plan
http://www.aarpfinancial.com/content/resource/investing/allocationplan.cfmInvesting Tips
http://www.fool.com/school/basics/basics01.htmhttp://www.jeremysiegel.com/
www.oppenheimerfunds.org
Objective Research
http://www.morningstar.comBooks That Will Help You
Cash-Rich Retirement by Jim Schlagheck (St. Martin's Press, 0-312-37740-1, March 2008)
Go to Step 6: Buy annuities for retirement income
Go back to main 'Steps' page
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