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Diversification is a strategy to reduce risk by spreading your investments across different areas. If one investment performs poorly, others might do well and balance out the loss.
For example, imagine you invest all your retirement savings in a single company like United Airlines. If its stock price falls 50% (like it did in 2020), your entire retirement savings would drop by 50% too. If you had invested in a lot of companies, the impact of United Airlines’ drop could have been much less.
A diversified investment portfolio isn’t just for wealthy investors. It’s for anyone who wants to protect their retirement savings while giving it the best chance to grow.
Today, diversifying your retirement savings is easier than ever thanks to products like ETFs – along with Target Date Funds which is an investment portfolio that grows your money when you're young and reduces risk as you get older.
Important Note: Diversification can reduce risk, but it can’t eliminate it completely.
Saving for retirement is a long term game and there will always be market ups and downs along the way. History is full of examples:
Diversification can help protect your retirement savings during these bumps, so hopefully no single event derails your retirement plans.
The mix of investments that make up your retirement account is called a portfolio. A diversified portfolio works in three important ways:
Pro Tip: The goal isn’t to eliminate risk - that’s impossible in investing, it’s about managing it.
Roll over all your old 401(k)s into a PensionBee Individual Retirement Account (IRA). It takes just a few minutes to sign up.
Get startedIf you feel overwhelmed by the idea of diversifying your portfolio, a Target Date Fund (TDF) might be right for you. These funds automatically adjust your investments over time:
Target date funds allow you to relax, knowing your retirement money’s spread across a broad mix of investments that carefully balance risk and reward for the stage of life you’re at.
Most 401(k) plans already offer target date funds, and if you have an IRA, you can choose a target date fund as well.
Another way of diversifying your retirement savings is by investing them in Exchange-Traded Funds (ETFs). ETFs are essentially baskets of investments that trade on the stock market. Each one contains a certain mix of investments, and there are lots to choose from.
Investing with ETFs is a quick way to diversify your retirement portfolio, saving you the effort of trying to pick and manage individual winners.
ETFs often have lower management fees which can save you money over time. This could potentially save you a lot of money over the decades you save for retirement.
Building a diversified retirement portfolio can feel overwhelming. At PensionBee, we make it simple. Our investment portfolios are made up of ETFs powered by State Street. Choose from our 5 portfolios or select our default plan, the Target Date Portfolio, which includes a diversified mix of investment options to balance growth and risk as you get closer to retirement.
Our U.S.-based rollover managers, known as BeeKeepers, offer your personal support to help you roll your old 401(k)s into a new PensionBee Individual Retirement Account (IRA). With our easy to use app and website, you’ll always know how much you have saved and how your account is performing. With PensionBee, you can be retirement confident with your savings all in one place, giving you control.
Although diversification has many upsides, one potential downside is that it can limit your potential gains if one investment performs really well.
Most 401(k) plans offer target date funds that are diversified by default. But check with your place of work to be sure.
Yes! In fact, this is exactly what target date funds do - they automatically adjust your mix of investments over time to become lower-risk as you get closer to retirement.
A common approach to diversify a 401(k) is to choose a target date fund that matches your expected retirement year.
A basic diversified portfolio typically includes a broad U.S. stock market ETF, an international stock ETF and a bond ETF. But the specific ETF that’s best for you will depend on your retirement goals and risk appetite.
It is possible to over-diversify your retirement savings, as individual gains could have too little of an impact to make a significant difference. For most people saving for retirement, a single target date fund should provide the right amount of diversification.
Diversification doesn’t prevent all losses - it just helps reduce them. It’s easier to say than do, but try staying focused on your long-term goals and avoid making emotional decisions during volatile periods. Diversified retirement funds typically perform well over the long term.
Roll over all your old 401(k)s into a PensionBee Individual Retirement Account (IRA). It takes just a few minutes to sign up.
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