Investing In The S&P 500 Does Not Give You Instant Diversification

Diversification is important for your portfolio. Unfortunately many people think they have a diversified portfolio, when in fact they do not. To download your free retirement report, “How To Avoid Annuity Traps” be sure to visit: http://retirementplanningmadeeasy.com/annuity-traps For many people retiring, they have to determine what to do with their 401(k) or other tax-qualified retirement plan they have with their employer. For many people their investing plan has been on auto-pilot, as contributions go into it each pay period. They may not even know exactly what their 401(k) is comprised of since they made their investment choices years ago. Contributions go into those funds each pay period and many people don’t keep a close watch on their portfolio. This means when you retire you have to take your portfolio off auto-pilot and figure out how to invest it so that it lasts for your whole retirement. This means you need to know some of the basics of building a portfolio that is right for you. For many people the first thing they will do is research which mutual funds and individual stocks they think they need in their portfolio. But it is actually better to start with the idea of diversification and asset allocation. Diversification is an important aspect of investing that you need to know about when rolling your 401(k) funds out of your employer’s plans upon your retirement. Many people think they know about diversification. But investing in an index that tracks the S&P 500 does not give your portfolio instant diversification. Two points you need to remember when trying to construct a well-diversified portfolio are: 1. You can diversify WITHIN an asset class And 2. You can diversify ACROSS asset classes. There are some basic Asset Classes out there such as: 1. U.S. Stocks 2. Bonds 3. International Bonds 4. Commodities 5. Real Estate. To diversify WITHIN an asset class, you must first pick a class. So in the case of U.S. Stocks, you can get some diversification by getting exposure to the S&P 500. But the S&P 500 only includes approximately 500 large-cap U.S. Stocks. You can get broader diversification WITHIN this asset class by investing in an index that tracks a broader range of U.S. Stocks, such as the CRSP U.S. Total Market Index. This index tracks approximately 4,000 U.S. stocks and includes almost 100% of the U.S. investable equity market. (1) That will give you broader diversification than just investing in an index that tracks the S&P 500. But, the second point about diversifying is that you need to diversify ACROSS different asset classes. So while investing in an index that tracks the CRSP U.S. Total Market Index gives you broad diversification in U.S. Stocks, it doesn't give you exposure to the other asset classes. The other asset classes include: Bonds; International Bonds; Commodities; and Real Estate. You can find mutual funds and ETF’s that track these asset classes and get broad exposure to them as well. This is a much more effective way to give your portfolio diversification in retirement. To read the full article that goes with this video, please visit: http://retirementplanningmadeeasy.com/ why-investing-in-the-sp-500-does-not-give-you-instant-diversification To download your free retirement report, “How To Avoid Annuity Traps” be sure to visit: http://retirementplanningmadeeasy.com/annuity-traps Disclosures: Investment Advisory Services offered through Retirement Wealth Advisors, (RWA) a Registered Investment Advisor. Tri-State Financial Group, and Tri-State Insurance & Financial Services, and RWA are not affiliated. Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. Past performance does not guarantee future results. Consult your financial professional before making any investment decision. Sources: (1) www.crsp.com/products/investment-products/crsp-us-total-market-index

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