, etc.). Since these accounts are insured up to $250,000 by the federal government, they offer the closest thing to an investment "guarantee." Diversification involves owning a mix of investments to reduce risk and volatility. Here a few common ways to diversify:: Owning shares of multiple companies so that your portfolio won't be significantly harmed if one stock declines or goes bankrupt.
: Moving beyond stocks and bonds, the traditional financial assets, to invest in additional types: real estate, commodities, private equity, and cash. The more diversified your portfolio becomes, the less of a chance you'll have of experiencing a huge loss in any given year. Unfortunately, with investments, the chance of big losses usually goes hand-in-hand with the possibility of big wins. Diversification's benefits often come at a cost: diminished returns.
But when it came to annualized returns for each portfolio, the conservative gained 8.1%, the moderate, 9.4%, and the aggressive,10%. Those slight differences may not seem like a big deal. But over a 40-plus year investment horizon, they add up. For example, if each portfolio had begun with $10,000, their final account tallies would have been: