Enrolling in and contributing to a 401(k) as early as possible is one of the simplest and smartest ways you can save for retirement. However, getting the most out of your retirement planning takes more than setting up the account and letting it grow over time. Periodically, you should check in with your portfolio to see how it’s performing, as well as identify opportunities to make your money work harder for you—such as through diversification. Here are a few points to keep in mind about diversification. 

What Is Diversification?

In general, diversifying means choosing investments from several different industries—such as health care, real estate, and technology. This helps balance your portfolio, so it is not too concentrated in any one area. It can also involve buying a proportionate amount of stocks, bonds, mutual funds, and other investment types.

What Are the Benefits Involved?

Throughout the life of your 401(k), the value of each of your investments will rise and fall according to market patterns. When the portfolio is not balanced, you have everything tied up in one asset, which could sink.

With a diversified 401(k), your retirement planning funds may be less at risk of disappearing at the next downturn. Instead, your portfolio will hold a balanced mix of assets. While some may lose value, the potential gains from other diversified areas may help compensate for the losses. As a result, you may reduce your risk of fluctuating account value. 

How Should I Select Investments?

As a starting point, pick a few selections from each asset class that’s available through your 401(k) plan. Since you’re looking to generate long-term wealth, you should research your options and pick those with a history of stable, positive performance and a mild risk level. If you have an ambitious target goal you are trying to reach, you might choose a few assets that carry a comparatively higher risk than the rest.

About once every six months to a year, you should look at your portfolio’s performance and identify the assets that are too volatile. To balance out the problem areas, add assets that deliver the inverse level of risk.

If you’re set on building a strong and robust 401(k), it may help to work with a trusted financial planner from Family Financial Partners. Headquartered in Lexington, KY, their team of financial advisors and investment planners has helped numerous clients with retirement planning since 2005. Call (859) 219-1006 for an initial consultation. Go online to learn more about their capabilities. You can also visit feeforplan.com for more information about financial plans tailored to your unique stage of life. 

Note: Diversification does not assure or guarantee better performance and cannot eliminate the risk of investment losses.

Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

Asset allocation does not assure a gain and does not protect against a loss in declining markets.

Past performance is no guarantee of future results.

The information contained herein is general in nature, is provided for informational purposes only, and should not be construed as investment advice. Before investing in any investment strategy, it is recommended that you consult with an investment advisor to discuss your individual investment objectives and financial situation.