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Lifestyle Funds for Easy Diversification

Are you looking into investing your money for your future? I am sure you have heard that old saying "don't put all your eggs in one basket". Well, this is so true when it comes to diversification; your money is put towards several different investments, and, if one happens to lose money, the others can make up for that loss. After you have begun investing, you will be able to take advantage of many online resources to help with managing your portfolio. For example, a lot of websites for mutual fund companies let you do an analysis of your investments. The results you get will show you if your investments are indeed diversified and if your portfolio is in need of rebalancing.

To truly have a diversified portfolio, it needs to be diversified between the asset categories as well as within the asset categories. This means that you will need to put your money towards several different investments within each of your original investments. For example, regarding the stock portion of your portfolio, one way would be to invest in a dozen or more individual stocks that you carefully select.

Achieving diversification can be a challenge, so it might be easier for you to diversify by owning mutual funds rather than individual investments. A mutual fund is defined as a company that gets money from a lot of investors and then invests that money into stocks, bonds and other financial instruments. Mutual funds enable investors to own a small portion of a lot of investments. For example, a total stock market index fund owns stock in thousands of companies; now that is, for one investment, a lot of diversification!

Keep in mind, however, that having a mutual fund investment will not necessarily give you instant diversification. If you have invested in mutual funds that are narrowly focused, you could very well have to invest in more than one in order to get the diversification you are after. This means that you might have to consider large company stock funds in addition to small company and international stock funds. Also, you may have to consider money market funds, stock funds and bond funds. Additionally, as you are adding more investments to your portfolio, you will, most likely, have to pay more expenses and fees; the end result will be a lowering of your investment returns. It is important to take all this into consideration when you are making decisions about how to diversify your portfolio.

For an investor who would like to use one investment to save for a certain goal, like retirement, some mutual fund companies have a lifecycle fund available for them. It is defined as a diversified mutual fund that, as it gets closer to a certain year in the future (a target date), automatically moves towards a more conservative mix of investments. Based on your investment goal, you will choose a fund with the correct target date. All the necessary decisions about diversification will be made by the managers of the fund. Identifying a lifecycle fund is quite easy due to the fact that it's name most likely will refer to it's target date. For example, you could see lifecycle funds called "Retirement Fund 2050" or "Portfolio 2012".

Over time, some of your investments might grow faster than others. When this occurs, you will need to do some rebalancing to get your portfolio back to a more comfortable level of risk. To achieve this, you can sell investments from over-weighted categories and use that money to buy investments from under-weighted categories and, if you continually contribute to your portfolio, you can change your contributions so that more investments are going to under-weighted categories until you get your portfolio back into balance. But, before doing this, think about any transaction fees or tax consequences that might be triggered by the rebalancing method you choose to use. Consulting your tax advisor or financial professional is a good idea and will help you to figure how you can reduce these costs.

It is a fact that a lot of financial experts make the recommendation that investors would be wise to rebalance their portfolios regularly, like every twelve months. Naturally, basing rebalancing on the calendar is great because you will always be reminded of it.

Remember, there is risk involved with all investments and it is possible that you could lose some or all of your money. So, make sure that you understand all of the risks of each investment you want to make before you take action.