Investment strategy diversification definition

And regardless of your time horizon and risk tolerance, even if you're pursuing the most aggressive asset allocation models, you may want to consider including a fixed income component to help reduce the overall volatility of your portfolio. The other thing to remember about your time horizon is that it's constantly changing.

So, let's say your retirement is now 10 years away instead of 25 years—you may want to reallocate your assets to help reduce your exposure to higher-risk investments in favor of more conservative ones, like bond or money market funds. This can help mitigate the impact of extreme market swings on your portfolio, which is important when you expect to need the money relatively soon. Once you've entered retirement, a large portion of your portfolio should be in more stable, lower-risk investments that can potentially generate income.

But even in retirement, diversification is key to helping you manage risk. At this point in your life, your biggest risk is outliving your assets. After all, even in retirement you will need a certain exposure to growth-oriented investments to combat inflation and help ensure your assets last for what could be a decades-long retirement.

Regardless of your goal, your time horizon, or your risk tolerance, a diversified portfolio is the foundation of any smart investment strategy. Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss.

Your ability to sell a CD on the secondary market is subject to market conditions. If your CD has a step rate, the interest rate may be higher or lower than prevailing market rates. The initial rate on a step-rate CD is not the yield to maturity.

If your CD has a call provision, which many step-rate CDs do, the decision to call the CD is at the issuer's sole discretion. Also, if the issuer calls the CD, you may obtain a less favorable interest rate upon reinvestment of your funds. Fidelity makes no judgment as to the creditworthiness of the issuing institution.

Keep in mind that investing involves risk. The value of your investment will fluctuate over time, and you may gain or lose money. In general, the bond market is volatile, and fixed income securities carry interest rate risk. As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities. Fixed income securities also carry inflation risk, liquidity risk, call risk, and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so holding them until maturity to avoid losses caused by price volatility is not possible.

Any fixed income security sold or redeemed prior to maturity may be subject to loss.

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Changes in real estate values or economic conditions can have a positive or negative effect on issuers in the real estate industry. The commodities industry can be significantly affected by commodity prices, world events, import controls, worldwide competition, government regulations, and economic conditions. Because of their narrow focus, sector investments tend to be more volatile than investments that diversify across many sectors and companies.

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All information you provide will be used by Fidelity solely for the purpose of sending the e-mail on your behalf. The subject line of the e-mail you send will be "Fidelity. Your e-mail has been sent. Past performance is no guarantee of future results. Asset allocation and diversification do not ensure a profit or guarantee against a loss.

Foreign investments involve greater risks than U. Please enter a valid ZIP code. Regularly revisit your portfolio with your advisor, including when your financial goals or personal circumstances change. Aggregate Bond Index. The process continues every calendar year from Dec. Janus Henderson prepared this chart for Ameriprise Financial and its clients. Janus Henderson is not affiliated with Ameriprise Financial. The views expressed are as of the date given, may change as market or other conditions change, and may differ from views expressed by other Ameriprise Financial associates or affiliates.

Actual investments or investment decisions made by Ameriprise Financial and its affiliates, whether for its own account or on behalf of clients, will not necessarily reflect the views expressed. This information is not intended to provide investment advice and does not account for individual investor circumstances. Diversification, asset allocation and dollar-cost averaging strategies can help protect against certain investment risks, but do not assure a profit or protect against loss. The indices used to represent asset classes in this review are unmanaged and do not reflect the impact of fees.

It is not possible to invest directly in an index. This index provides a broad snapshot of the overall US equity market. The Russell Index measures the performance of the small-cap segment of the US equity universe. The Russell is constructed to provide a comprehensive and unbiased small-cap barometer and is completely reconstituted annually to ensure larger stocks do not distort the performance and characteristics of the true small-cap opportunity set.

Why Do You Need Diversification?

The Russell includes the smallest securities in the Russell The Bloomberg Barclays Capital U. The Bloomberg Barclays US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar denominated, fixed-rate taxable bond market. It reflects the return of underlying commodity futures price movements.

It is designed to provide a broad measure of stock performance throughout the world, with the exception of U. Russell Midcap Index is a market capitalization-weighted index comprised of publicly traded U. The companies in the Russell Midcap Index are the smallest of the 1, companies that comprise Russell Index. Bloomberg Barclays U. Bonds from issuers with an emerging markets country of risk, based on Barclays EM country definition, are excluded.

This multi-currency benchmark includes investment grade, fixed-rate bonds issued by governments in their native currencies. The indexes are designed to operate as a reference rate for a series of funds. All Rights Reserved. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.

Ameriprise Financial, Inc. Consumers should consult with their tax advisor or attorney regarding their specific situation. Investment products are not federally or FDIC-insured, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value. Key Points. Diversification and asset allocation are time-tested investment strategies. Use them to invest with more intention, objectivity and confidence.