5 Potential Benefits of Diversification
Diversification can provide potential advantages that go beyond overall returns. But first, you need to know what you're trying to achieve.
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This article has been prepared for informational purposes only and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Individuals need to make their own decisions based on their specific investment objectives, financial circumstances and tolerance for risk. Please contact your financial, tax and legal advisors regarding your specific situation and for information on planning for retirement.
All investing involves risk including the possible loss of principal. Each asset class has its own risk and return characteristics. The level of risk associated with a particular investment or asset class generally correlates with the level of return the investment or asset class might achieve. Foreign investing presents certain risks not associated with domestic investments, such as currency fluctuation, political and economic instability, and different accounting standards. This may result in greater share price volatility. These risks are heightened in emerging markets.
Diversification does not guarantee profit or protect against loss in declining markets. Asset allocation cannot eliminate the risk of fluctuating prices and uncertain returns.
Dividends are not guaranteed and are subject to change or elimination.
Stock values may fluctuate in response to general economic and market conditions, the prospects of individual companies, and industry sectors.
Alternative investments products employ alternative strategies and are more complex investment vehicles. They tend to be more volatile than other types of investments and present an increased risk of investment loss.
Real estate-based investing: There are special risks associated with an investment in real estate, including credit risk, interest rate fluctuations, and the impact of varied economic conditions.
Fixed income investments involve certain risks such as market risk if sold prior to maturity and credit risk especially if investing in high-yield bonds, which have lower ratings and are subject to greater volatility. All fixed income investments may be worth less than original cost upon redemption or maturity. Bond prices fluctuate inversely to changes in interest rates. Therefore, a general rise in interest rates can result in the decline of the value of your investment.
Income from municipal securities is generally free from federal taxes and state taxes for residents of the issuing state. While the interest income is tax-free, capital gains, if any, will be subject to taxes. Income for some investors may be subject to the federal Alternative Minimum Tax (AMT).
There can be no assurance that a manager’s overall investment or hedging strategy will be successful.
Mutual funds are subject to risks similar to those of stocks. Investment returns may fluctuate and are subject to market volatility, so that an investor’s shares, when redeemed or sold, may be worth more or less than their original cost.
Socially Responsible Investing Strategies: A portfolio’s social policy could cause it to forgo opportunities to gain exposure to certain industries, companies, sectors or regions of the economy which could cause it to underperform similar portfolios that do not have a social policy. A socially responsible investing style may shift in and out of favor.