What is diversification?

  • View transcript

    You've probably heard the expression "Don't put all your eggs in one basket?"

    The problem is that it only tells half the story. You may not only need more than one basket, you may also need more than one kind of egg–at least when it comes to your investments.

    Think of it this way: in the long run, stocks may be a good investment, but the stock market has up years and down years. So do cash and bonds. Very often, when one kind of investment has a down year, others may have up years.

    By putting together a mix of cash, bonds and stocks–and even different kinds of stocks from across the globe–ups and downs may be less extreme, and that helps create a less volatile experience.

    The good news is, you don't have to manage this mix on your own. Target date funds can do it for you. Target date funds use diversification in two ways. First, they give you a mix of investments, including international exposure.

    Then they change that mix as you age, investing heavily in stocks at the beginning of your career but getting more conservative as you get closer to retirement.

    That way no matter where you are on your life's path, you'll have an age appropriate diversified portfolio designed to help grow your retirement savings.