Studio 5 is live! Click here to watch.

Diversification – Choosing investments in your 401k

Ray Levitre is a Certified Financial Planner who helps people make wise choices, and he explains some of the mistakes.


Twenty-Year Study, 1990-2009
   – Average stock mutual fund investor: 3.20% average annual      return
   – Average stock mutual fund: 8.80% average annual return
*Avoid Self Destructive Investor Behavior, Davis Funds

Why do investors do so poorly when the investments they are buying do well? There are two main problems they run into:

   1. Lack of diversification
   2. Lack of discipline, emotional investing

Most investors look at the list of investment options and buy 2-3 of the funds that recently did well. Without more diversification than 3 funds you are likely going to have more volatility.

You can think of diversification like a baseball team. If you’re the coach and you have 9 players to put on the field, where are you going to put them on the field? You’re going to place them all over the field because you don’t know where the ball is going to go.

Your investments are the same. Because we don’t know where the market is going to hit the ball we need to spread are investments over many slices of the stock and bond market. I recommend buying 8-9 funds. Here are positions I’d suggest you have on your team.

Once you own the funds, your best bet is to maintain your strategy. The study showed that had you just stuck with your strategy you would have enjoyed 5.6% better return than those who are moving their money around a lot.


Ray would like to give you a copy of his book “20 Retirement Decisions You Need to Make Right Now”. He will give a copy to the first 50 people who visit his website www.networthadvice.com and request a copy through the “Contact Us” tab.

Add comment