Financial Makeover: Diversify and Prosper
Dec. 8 -- — Q U E S T I O N: My retirement accounts are spread among seven plans. I am hoping to find employment again and defer accessing other retirement funds for six to eight years. By maximizing my recent years' contributions to retirement funds, I have been trying to maintain their values, which have been negatively impacted by the market's fall in recent years. I think I should invest in some stable individual stocks, but do not know which ones to select or when. I have concerns with some of my more risky mutual funds. I would like to get with a program I can monitor and manage without feeling overwhelmed. My goal is to be in control of my funds and reasonably maximize their growth without risking too much foolishly.
— Nancie
A N S W E R:
With money stashed in seven different retirement plans, Nancie and her husband, Rob, are feeling overwhelmed by the task of monitoring and managing their far-flung investments — and who could blame them? They're looking for opportunities to simplify and coordinate their investments, as well as for some guidance about when and how to select investments. And while Nancie and Rob were prompted to write by their nearing retirement, the principles discussed below can apply to any investor.
Diversification: Key to Long-Term Success
A big part of the reason that so many people procrastinate about investing is that it appears to be so complicated. The media fuels this perception by publishing magazines with provocative cover articles touting "The 12 Funds You Must Own Now!" or "Six Stocks to Own This Year!" or "10 Funds for 2004!" Articles like these create the perception that you should always be doing something with your investments — and soon! Fortunately, investing doesn't need to be complicated. In fact, it can be quite dull, and I would argue that that's the way it should be.
Investing is not about gambling or "playing the market" or finding the best performing stock or mutual fund for the year. Investing is about tapping into the long-term growth potential of companies and economies around the world as a way to reach one's personal financial goals. For most people, the best way to do this is to create an investment portfolio using broadly diversified mutual funds called index funds, which simply match the performance of the broad stock market as a whole.
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