Diversification is a term you hear thrown all around the retirement investing world. And because it is used so much, the definition and execution of diversification has become muddled and confusing— so much so that some investors occasionally harm their investment portfolio when they try diversifying.
In his latest submission to the U.S. News & World Report Smarter Investor blog series, Smart 401k CEO Scott Holsopple attempts to clear up some of the confusion by examining diversification in retirement planning.
In an excerpt from the post, Scott looks at a common mistake investors make with diversification.
“Another misstep investors take with diversification is not rebalancing on a regular basis. As one area of your account, stocks, for example, continues to grow, it can become disproportionate to your original diversification request. If you don’t rebalance, or move the account to meet your original diversification boundaries, then you could be taking on more risk than you intended.”
Diversification is an effective way to reach your retirement goals. But like any other investment strategy, it is vital to understand what it is and how to use it properly before you apply it to your investment plan as a whole.
Smart401k is a web-based investment advisory service providing unbiased recommendations to help people invest in employer-sponsored retirement plans. Smart401k provides service to nearly 11,000 clients who collectively have more than $2 billion in assets. Plan participants receive personalized, fund-specific investment recommendations and the support of professional investment advisers available to discuss all investment questions. Based in Overland Park, KS, Smart401k is online at Smart401k.com.