It looks great on paper. Diversification is the hailed financial theory that says investors can reduce the ups and downs of their portfolio by sprinkling money all over the place in different types of investments, rather than plunking down everything on just household-name U.S. stocks.
Investors who take a closer look, though, can see that diversification has done what it’s supposed to do. And for investors looking for a prudent way to gear up for the stretch goal of saving for retirement, diversification can still be a big key to success.
“Diversification is like a free lunch, or at least a free hors d’oeuvre,” says Ian Ayres, professor of law at Yale University who has studied diversification. “You want to take advantage of it.”
“Diversification is a great tool to protect against risks of problems at a particular company or industry, but not if the entire financial system comes under strain.” Read how diversification can get more powerful over time and what the key ingredients to make your diversified portfolio work at USA Today.
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