10 Mistakes That Retirees Make and How to Avoid Them: Tip 2- Failing to Diversify

So mistake number two is failing to diversify. Oftentimes whenever we’re sitting down with a new client, and particularly with retiree clients, we see that maybe they own an assortment of mutual funds and ETFs.

But the investment style within each of those funds is very similar. This causes the entire portfolio to either go up all at once or down all at once. So it’s very important that we have exposure to multiple asset classes to properly diversify.

So what this chart is showing is all the different asset classes that you can invest in. As you can see, we have large mid and small cap in the US. And then internationally we have developed markets, emerging markets, and then also real estate and fixed income.

In order to have a properly diversified portfolio, we need to have exposure to each of these blocks and not only have one investment inside of each of these, but have many, many within. One good example of this would be thinking of holding up a single pencil, very easy to snap in half, versus if we have a rubber band wrapped around, say, 300 pencils, it would be nearly impossible.

So very important, whether you’re in the accumulation phase or just nearing retirement or you’re already retired, to have a properly diversified portfolio to greatly increase your odds of pulling out at a gain.

Whenever you have concentrated position, whether that’s in one fund or one asset class, like, say, the US. Large cap us. Stock market in general, whenever you’re distributing funds, it’s very important that we have an assortment to pick, choose from.