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Diversification

Diversification

Everyone has heard the old adage, “don’t put all your eggs in one basket”.  The truth is that many Americans are inadvertently putting the majority of their investments in one “financial basket”.  To create true diversification, investors must be sure that they are spreading risk across many sectors of the markets…not just assuming that the mutual fund manager is doing it for them.  Although this list is not comprehensive, here are some examples of what it means to be truly diversified:

Stocks

  • Small, Mid or Large Cap
  • Growth, Value or Dividend
  • Domestic or Foreign
  • Developed or Emerging Markets
  • Specific Industry Sectors such as:Real Estate, Construction, Commodities, Technology, etc.

Bonds

  • Government & Treasury
  • Municipal
  • Investment-grade Corporate
  • High Yield
  • Foreign

Cash

  • Savings, CD’s and Money Markets

True diversification also means insuring against “overlap”.  Overlap occurs when an investor owns several Mutual Funds or ETFs (Exchange Traded Funds) that have similar holdings of the same investment.  Often times, this happens inadvertently and the investor has no idea that they are actually exposing themselves to a much higher level of risk. It is important to understand that while diversification does not remove risk, we believe that it is an important factor in helping to reduce risk.

At Wealth Watch Advisors, we create portfolios with true diversification in mind.  Our goal is to assist our clients in building wealth safely.  By constant monitoring of portfolios through cutting edge technology, we can help prevent additional risks associated with lack of diversification and overlap.

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