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Newsletter

2011 1st Edition (Other Editions)

MULTIPLE LEVEL DIVERSIFICATION THROUGH A MUTUAL FUND PORTFOLIO

By properly and carefully selecting a number of different mutual funds to form a portfolio of funds, the portfolio may provide multiple levels of diversification (thus reducing risk) that cannot be achieved by investing into one or two mutual funds or individual stocks and bonds.

NUMERICAL DIVERSIFICATION

Each mutual fund in the portfolio is diversified itself because it is holding a number of stocks, and/or bonds and/or cash equivalents.

ASSET TYPE AND SECTOR DIVERSIFICATION

Your portfolio is further diversified by investing in funds that hold different types of assets. For example, a fund may buy various types of stocks such as emerging growth and/or small company growth. Furthermore, within the asset type, fund managers are able to buy across different sectors within the class. An example would be a fund that buys high-grade corporate bonds and low-grade corporate bonds. Several different bond funds together may also represent different perspectives on the average maturity of the bonds they chose as well. A portfolio of funds allows investors to capture a large assortment of available investment alternatives across a large number of sectors.

MANAGER DIVERSIFICATION

Since each fund has a certain investment style or expertise, by owning a portfolio of funds with different styles, investors can reduce the risk of the portfolio under performing because one or two manager styles were out of favor this year. Generally, the overall return of the portfolio will not rise or fall on the investment expertise of one portfolio manager. Instead, if funds are carefully selected, this strategy is designed to minimize losses by balancing them against more successful choices.

Mutual fund shares are not deposits or obligations of, or guaranteed by any depository institution. The value of the shares will fluctuate so that when redeemed, shares or units may be worth more or less than the original cost. Past performance does not guarantee future results. Please read and understand the prospectus for a mutual fund before investing.

Source: Financial Planning Consultants, Inc.