Diversification: 2 truths and a lie
Diversification means spreading your investments across multiple assets, asset classes, or markets. We’re big diversification fans here at Betterment.
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Betterment Editors
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Diversification: 2 truths and a lie Sep 7, 2023 3:22:03 PM Diversification means spreading your investments across multiple assets, asset classes, or markets. We’re big diversification fans here at Betterment. An example of a diversified investing strategy: Diversification takes many forms, but an example could include combined investments in stocks from various industries and countries along with a mix of bonds and even a high-yield cash account. Two truths and a lie: Which of the following isn’t necessarily true about diversification? Diversification requires you to do more work Diversification can help reduce risk Diversification can help provide more consistent performance If you guessed A, you’re correct! Diversification does require more work but it doesn’t have to be you that does the work. That’s where we come in. We do the heavy lifting for you. We monitor your investments and rebalance your portfolio when it reaches the minimum balance threshold to help reduce risk. Rebalancing is the process of selling and buying the necessary securities as the market fluctuates. This maintains diversification by bringing your portfolio back into line as it deviates from its target asset allocation. Plus, we offer automated tools, like recurring deposits and tax loss harvesting, to help you grow a diversified portfolio. With recurring deposits, you can grow your investment over time and the regular deposits can help us rebalance your portfolio more tax-efficiently. Tax loss harvesting is the practice of selling a security that has experienced a loss that can offset gains. Tax Loss Harvesting+ (TLH+) is not suitable for all investors. Consider your personal circumstances before deciding whether to utilize this feature. It’s true that diversification can help reduce risk. Distributing your investments across assets distributes your risk. If 100% of your money is in one stock and it collapses, you could lose nearly everything. But if only 3% of your money is in that one stock, the rest of your portfolio survives. A typical example in a Betterment portfolio could be a distribution of global and domestic stocks across industries and company sizes. That way your portfolio is less likely to experience extreme changes in value due to a single industry or geographical region. It’s also true that diversification can help provide more consistent performance. One of the goals of diversification is to invest in unrelated assets, meaning stocks and bonds that have different factors driving their value. This way, not all of your assets gain or lose value at the same time. The big picture: Diversification is all about playing the long game, tapping into the potential growth of the global markets to help manage risk over time. At Betterment, our expert-built portfolios are a recipe for diversification. You can choose from: Stock and bond portfolios, including socially responsible investing and innovative technology Cryptocurrency portfolios High-yield Cash Reserve account
An example of a diversified investing strategy: Diversification takes many forms, but an example could include combined investments in stocks from various industries and countries along with a mix of bonds and even a high-yield cash account.
Two truths and a lie: Which of the following isn’t necessarily true about diversification?
- Diversification requires you to do more work
- Diversification can help reduce risk
- Diversification can help provide more consistent performance
If you guessed A, you’re correct!
Diversification does require more work but it doesn’t have to be you that does the work.
- That’s where we come in. We do the heavy lifting for you. We monitor your investments and rebalance your portfolio when it reaches the minimum balance threshold to help reduce risk. Rebalancing is the process of selling and buying the necessary securities as the market fluctuates. This maintains diversification by bringing your portfolio back into line as it deviates from its target asset allocation.
- Plus, we offer automated tools, like recurring deposits and tax loss harvesting, to help you grow a diversified portfolio. With recurring deposits, you can grow your investment over time and the regular deposits can help us rebalance your portfolio more tax-efficiently. Tax loss harvesting is the practice of selling a security that has experienced a loss that can offset gains. Tax Loss Harvesting+ (TLH+) is not suitable for all investors. Consider your personal circumstances before deciding whether to utilize this feature.
It’s true that diversification can help reduce risk.
- Distributing your investments across assets distributes your risk. If 100% of your money is in one stock and it collapses, you could lose nearly everything. But if only 3% of your money is in that one stock, the rest of your portfolio survives. A typical example in a Betterment portfolio could be a distribution of global and domestic stocks across industries and company sizes. That way your portfolio is less likely to experience extreme changes in value due to a single industry or geographical region.
It’s also true that diversification can help provide more consistent performance.
- One of the goals of diversification is to invest in unrelated assets, meaning stocks and bonds that have different factors driving their value. This way, not all of your assets gain or lose value at the same time.
The big picture: Diversification is all about playing the long game, tapping into the potential growth of the global markets to help manage risk over time.
At Betterment, our expert-built portfolios are a recipe for diversification. You can choose from:
- Stock and bond portfolios, including socially responsible investing and innovative technology
- Cryptocurrency portfolios
- High-yield Cash Reserve account