Portfolio diversification is the implementation of an investment strategy that attempts to balance risks vs. reward by adjusting the percentage of each asset in an investment portfolio according to the investors risk tolerance, goals, and investment time frame. The focus is on the characteristics of the overall portfolio.
Asset allocation is one of the most important decisions that investors make.
I have met individuals with too much of their retirement money "safe money" either in one, two, or few different stocks. A good way to test your conviction on your current stocks is to ask this question. "If my money were all in cash today, would I feel it appropriate to purchase those same stockpositions now, at my current age in the same dollar amount?" If the answer is no, then you may have too much of your money in stocks today.
Another common issue is retirees often have too much of their "safe money" in the market, at risk. If the market makes a serious correction their retirement lifestyle may be at risk. They have failed to considered that as they get older their asset allocation should continue to be evaluated. Build awareness. Make a plan. Minimize your risk. The video above discusses the Rule of 100.
In a recent survey when retirees were asked, “What amount of their retirement investments were they comfortable losing?” Fifty five percent of them responded saying they would be willing to lose 0% of their retirement investments. Twenty one percent of them said the would be willing to lose up to 5%. Sixteen percent responded they were comfortable losing up to 10%. The balance, eight percent, said they would be ok losing fifteen to twenty percent.
What amount of your retirement investments are you willing to lose?
Below is an allocation chart with no consideration as to the age of the investor.