Market volatility can make investors feel like things are out of control. While you can’t control the market’s movements, you may have more control than you realize over your investments. Start regaining control by taking the reins in hand to build a diversified portfolio appropriate for your time horizon.
Diversify Within Asset Classes
Investments can be grouped into three general asset classes: money market securities, bonds and stocks (also called equities).
Each asset class has its own traits and may respond differently to the same economic or world events. Within the bond and stock asset classes, there are sub-asset class levels, each of which has its own distinct traits. By spreading your money across different types of assets, you can potentially reduce, but not eliminate, the overall risk of your holdings.
The Homestead Family of Funds includes a money market fund, two bond funds and five equity funds. To create a well-rounded investment program, consider allocating your money across two or more funds in our family. As your needs change over time, you can exchange shares between the funds and pay no transaction or redemption fees.
Diversifying by Type of Security
Mutual funds invest in many (sometimes hundreds of) securities. This diversification increases the chance that your investment will perform more evenly.
That’s because typically over any given time period some securities will perform well and others will not. When you own many securities, the gains realized by some may work to offset the losses incurred by others. It speaks to the old saying “Don’t keep all your eggs in one basket.”
If you were to buy securities directly, you’d need a substantial amount of money to create a diversified portfolio. But with a mutual fund, you get exposure to many different securities with a single investment.
Regularly Review and Rebalance Your Portfolio
Review your quarterly account statements to keep your finger on the pulse of your investments.
If you are satisfied that the portfolio is helping you meet your goals, stick with that investment strategy. If your needs change, review your portfolio and consider making a change to realign your allocation to your goals.
Diversification does not guarantee a profit or protect against a loss in a declining market. It is a method used to help manage investment risk. Rebalancing can entail transaction costs and tax consequences that should be considered when determining a rebalancing strategy.