What is Diversification?

Simplifying Diversification with Target Date Funds

If 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:

• Early in your career: TDFs focus on higher-growth investments, like stocks.
• Closer to retirement: They shift toward lower-risk investments, like bonds and cash.

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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.

ETFs Are a Quick Way to Diversify Retirement Savings 

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.

Diversify Your Retirement Savings with PensionBee

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.

FAQs

Are there any downsides to diversification?

Although diversification has many upsides, one potential downside is that it can limit your potential gains if one investment performs really well.

Is a 401(k) diversified?

Most 401(k) plans offer target date funds that are diversified by default. But check with your place of work to be sure.

Can a 401(k) be diversified by age?

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.

What’s the best way to diversify a 401(k)?

A common approach to diversify a 401(k) is to choose a target date fund that matches your expected retirement year.

What are the best ETFs for a diversified portfolio?

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.

How much diversification is too much?

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.

What to do when diversification fails?

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.