What is a diversified portfolio? [MUSIC PLAYING] SPEAKER: As the old saying goes, don't put all your eggs in one basket. When applied to investing, it means you don't want to rely too much on a single investment. That's where diversification comes in. Having more than one type of investment helps you spread out and manage overall portfolio risk. A diversified portfolio is generally made up of two or more asset classes, each with a different level and type of risk. An asset class is a group of similar types of investments. The four major asset classes are equities, which represent an ownership position in a company, bonds, or debt instruments, cash equivalents, such as money market accounts, and certificates of deposit, and real assets, such as commodities or real estate. When selecting assets within each class, it's important to consider correlation. As an example, while stocks and bonds are different asset classes, stocks and high yield bonds react to market volatility similarly. Selecting bonds that have a negative correlation to stocks, such as municipal bonds, can help ensure your portfolio is appropriately diversified. How you structure your mix of assets is called asset allocation. And it should be based on your specific financial goals, time horizon, and risk tolerance level. While asset allocation should be considered a long-term strategy, it will require rebalancing from time to time. Not all assets perform the same over different time periods. Plus, if changes occur in your life, or as you get closer to your goals, you may want to make adjustments in your asset mix to properly reflect those changes. Diversification is a time tested approach to investing. It's designed to help you generate the desired investment results with more consistent performance on a year-to-year basis. Review your own portfolio to determine if it's appropriately diversified for your financial situation, and to help meet your most important goals. [MUSIC PLAYING]