To continue enjoying all the features of Navy Federal Online, please use a compatible browser. You can confirm your browser capability here.

Bottom Line Up Front

  • Choose varied investments and don’t focus too much on one type.
  • Goals and risk tolerance make a difference in how you should invest.
  • Navy Federal’s financial advisors and robo investing tools can help you with diversification and portfolio management.

Time to Read

4 minutes

April 19, 2022

It’s easy to get swept up in choosing investments based on hot trends or favorite brands. If your portfolio is too focused in one area, you’re more likely to have financial loss. That’s why investment diversification is a smart move, no matter what’s happening in the stock market. Here are some ideas to help you add different types of investments to your portfolio.

What’s a Diversified Portfolio?

A diversified portfolio has balanced investments to manage risk. If most of your investments are in just one or two sectors (e.g., energy or real estate) and if those sectors perform poorly, you have a higher risk for loss. However, if you own stocks in multiple sectors across different industries and companies, and any one of those performs poorly, it will have less of an impact.

What Is Asset Allocation, and Why Should I Care?

Asset allocation is a plan for how you’ll invest, the amount you’ll spend and the types of investments you’ll make. It’s deciding how much money will go to stocks, bonds and cash, or asset classes.

A simple approach to variation between different asset classes is based on age. Subtract your age from 100—that’s the percent to invest in stocks. For example, a 30-year-old could invest 70 percent in stocks, but a 70-year-old probably should only invest 30 percent in stocks. If you’re older and on a fixed income, you’ll need money sooner, so invest more conservatively. If you’re younger, you’ll have more time to recover if any stocks perform poorly, so you could invest more boldly.  

A financial advisor can look at your finances and help you set goals, particularly if you’ve recently changed jobs or you’re approaching retirement and need to adjust to your new lifestyle.

Your diversification strategy also depends on risk. Here are some questions to ask before investing:

  • Are you ready to give up safety for higher returns? 
  • Are you willing to accept changing interest rates to reach your financial goals? 
  • Are you willing to accept market risk to stay ahead of inflation? 
  • From time to time, can you handle losses? 
  • Are you willing to accept uncertainty for higher returns?

Since timing, goals, market conditions and even your risk tolerance could change, revisit your plan at least twice a year. In the end, it’s all about increasing returns while reducing risk.
 

Need Help?

Are you an Investing beginner or just want an online tool with pre-built customizable portfolios? No need to go to a brokerage. Get started on your own with Navy Federal Investment Service’s Digital Investor robo-investment tool. Or, consult one of our financial advisors.

Start Investing

Terms to Know

Look at your goals and timeframe, then decide how much risk you can take on and choose what amount you’ll invest and where. Then it’s time to choose your investments. These terms will help: 

  1. Stocks: shares in a publicly traded company (e.g., Apple, Johnson & Johnson)
  2. Bonds: lending money in exchange for a preset return amount
  3. Mutual Funds: an investing pool that invests in several companies
  4. Exchange-Traded Funds (ETFs): group of investments you buy through a fund company (price changes throughout the day)
  5. Index Funds: a stock fund that gives a low-cost way to gain diversified exposure to stocks
  6. Cash and Cash Equivalents: money deposited with a bank or credit union or investments securities meant for short-term investing; they have high credit quality and are highly liquid
  7. Certificates of Deposit: money deposited with a bank or credit union (called Share Certificates at credit unions) for a set return over a set time period 
  8. Managed Account: investment portfolios customized to the risks, goals and needs of the account holder 
  9. Retirement Plans: tax-advantaged plans, like IRAs and 401(k)s, that do the investing for you in stocks, bonds and funds
  10. Options: purchasing the right to buy or sell at a set price and time
  11. Annuities: a contract bought from an insurance company for timed payments
  12. Cryptocurrencies: money that isn’t backed by any government (e.g., Bitcoin)—a risky investment
  13. Commodities: basic goods from agriculture (e.g., grain), energy (e.g., oil), precious metals (e.g., gold), etc. 
  14. Sectors: companies that have similar characteristics (e.g., financials, communications, materials) 

 

Key Takeaways

Disclosures

All product and company names and logos are trademarks™ or registered® trademarks of their respective holders. Use of them does not imply any affiliation with or endorsement by them.

Navy Federal Investment Services, LLC (NFIS) is a licensed insurance agency. Non-deposit investments, brokerage, and advisory products are only sold through Navy Federal Investment Services, LLC (NFIS), a member of FINRA/SIPC and an SEC-registered investment advisory firm. NFIS is a wholly owned subsidiary of Navy Federal Financial Group (NFFG). Insurance products are offered through NFFG and NFIS. These products are not NCUA/NCUSIF or otherwise federally insured, are not guaranteed or obligations of Navy Federal Credit Union (NFCU), are not offered, recommended, sanctioned, or encouraged by the federal government, and may involve investment risk, including possible loss of principal. Deposit products and related services are provided by NFCU. Financial Advisors are employees of NFFG, and they are employees and registered representatives of NFIS. NFIS and NFFG are affiliated companies under the common control of NFCU. Call 1-877-221-8108 for further information. 

This content is intended to provide general information and shouldn't be considered legal, tax or financial advice. It's always a good idea to consult a tax or financial advisor for specific information on how certain laws apply to your situation and about your individual financial situation.