Diversification: The Foundation of Asset Allocation

Understanding Diversifiction with Asset Allocation Strategy

Before exploring just how you can put an asset allocation strategy to work to help you meet your investment goals, you should first understand how diversification — the process of helping reduce risk by investing in several different types of individual funds or securities — works hand in hand with asset allocation.

When you diversify your investments among more than one security, you help reduce what is known as “single-security risk,” or the risk that your investment will fluctuate widely in value with the price of one holding. Diversifying among several asset classes increases the chance that, if and when the return of one investment is falling, the return of another in your portfolio may be rising (though there are no guarantees). Neither asset allocation nor diversification guarantee against investment loss.

© LPL Financial, created by Standard & Poors

Securities offered through LPL Financial, Member FINRA/SIPC. Advisory services offered through Wealth Enhancement Advisory Services, a registered investment advisor.

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