Frequently Asked Questions

How does diversification lower my risk?

The returns of stocks, bonds, and cash investments usually don’t all rise or fall at the same time. When returns for one asset class fall, those of another asset class may be rising.

Diversification—the simple concept of not putting all your eggs in one basket—takes advantage of this investment principle. When you diversify, you invest in different asset classes—and even in different segments of those asset classes. In this way if an investment in one asset class does poorly, the loss may be tempered by an investment in another asset class. Although diversification can never eliminate the risks of investing, it lowers your overall risk by spreading the risk around. Investing in mutual funds is a proven diversification strategy. By investing in a mutual fund’s array of assets, you reduce the risk that comes with owning any single stock or bond.

Though it’s important to diversify across the asset classes, you can also lower your risk by diversifying within asset classes. In stocks, for example, you can hold a fund that invests in all types of stocks, such as growth and value stocks as well as stocks of large, midsize, and small companies. For fixed income investments, consider buying both short-term and intermediate-term bond funds. Many investors further diversify by holding international stock funds or stocks of firms that own real estate.


Investing involves risk including the possible loss of principal. No guarantees of investment success can be offered or that a client's goals and objectives will be achieved. Investments will fluctuate and there will be periods where the investments may be worth less than the initial purchase value.