Diversify your assets
You can reduce the risk in your portfolio by spreading your investment dollars among different types of assets. This is known as diversification.
How diversification works
Investments may lose and gain value at different times. When some investments are down, others may be up. If the values of certain investments have declined significantly, others may not have fallen as much.
If you put all of your money into a single investment, you’d be depending solely on the return of that one investment — for better or worse. Your overall returns would fluctuate right along with any ups and downs of the one investment.
An alternate strategy is to diversify your investments. By spreading your risk, your overall returns wouldn’t reach the lowest lows or the highest highs of any single investment you own. Diversifying your portfolio will help reduce its overall volatility.
Stocks vs. bonds example
Since 1926, stocks have provided a higher return than bonds in 52 of 84 calendar years* — far from an overwhelming advantage. Bonds had a higher return in the other 32 years, so you need to put money in stocks as well as bonds if you want the opportunity to benefit from both.
- *
- Based on year-by-year total returns. Source: for stocks, Standard & Poor’s 500 Composite Index; for bonds, Citigroup Long-Term High-Grade Corporate Bond Index, from Ibbotson AssociatesSM.
- Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity.
Return to topInvestors should carefully consider the investment objectives, risks, charges and expenses of the American Funds. This and other important information is contained in each fund’s summary prospectus and prospectus, which can be obtained from your plan’s financial professional or downloaded and should be read carefully before investing.