Why you should think about diversifying

Different types of investments perform better in different market conditions. Investing in a variety of assets like stocks, fixed income, and real estate can result in better diversification and help reduce the risk for your overall investment portfolio. In fact, one study found that how you diversify your portfolio can account for more than 90% of your investment performance. (Brinson, Beebower, and Hood, “Determinants of Portfolio Performance,” 1986.) Diversification can work over time, but not every time In recent years, the S&P 500 index, a benchmark composed of the 500 largest US stocks, has overshadowed the performance of other sectors in the market such as commodities and fixed income.  This has caused some to question the benefits of diversification, which can require more oversight and cost than a low-cost large cap index fund.  While diversification will not guarantee you the best returns each year, it can help you achieve results tailored to your financial goals over time with less expected risk. Diversification is often confused with asset allocation, but not all asset allocations provide the same level of diversification. For example, if your portfolio is divided evenly among different types of the same asset (e.g., U.S. stocks, European stocks, and Japanese