5 Key Signs Your Retirement Investments Aren’t Diversified Enough
Written by
Vance Cariaga
Edited by
Amen Oyiboke
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Every time the stock market collapses — as it has lately in the wake of President Donald Trump’s tariff plans — investors are reminded of the importance of diversifying their portfolios. This is especially important with retirement investments.
Diversifying your investments means spreading your money out over several different asset types. This way, if one asset takes a sudden and unexpected tumble, your other assets can help pick up the slack. The idea is to keep things balanced so your investments can grow in any kind of economic environment.
Numerous retirement options are available, including 401(k)s, pensions, stocks, bonds, mutual funds, real estate, precious metals and cryptocurrency. Check your retirement portfolio regularly to ensure it is properly balanced.
Here are five key signs that your retirement investments are not diversified enough.
Your Investments Are Too Heavily Concentrated in a 401(k)
The most popular form of retirement account in the United States is 401(k) plans easily, with more than 70 million active participants nationwide, according to 2024 data from the Investment Company Institute. These plans are a great way to save for retirement because of their tax advantages and the fact that you can earn free money through employer matches.
But you shouldn’t depend on 401(k)s alone for your next egg.
For one thing, there’s a limit to how much you can contribute to the plan every year. For another, most 401(k)s are heavily weighted toward stocks and mutual funds — and when the stock markets fall, so does your 401(k) balance. It’s important to diversify your retirement investments to include high-yield savings accounts, real estate holdings, bonds and other assets.
You Have Too Much Money in Savings
Bank savings accounts are a safe place to put your money because funds are protected by the Federal Deposit Insurance Corporation. What’s more, you can earn interest of 4.5% or higher with the best high-yield savings accounts, and you have easy access to the money.
Despite those advantages, you’ll get a higher long-term return by putting most of your retirement investments elsewhere. A general rule of thumb is that cash or cash equivalents “should range from 2% to 10% of your portfolio,” according to US Bank.
Your Stocks All Look the Same
Just as there are many different asset types, there also are many different types of stocks — based on everything from their capitalization, share price and dividend program to their economic sector and growth strategy. If you find that your retirement portfolio is weighted too heavily toward one type of stock, then it’s a sign that you need to diversify.
You Lack Alternative Investments
Many retirement portfolios are composed almost entirely of 401(k)s, stocks, bonds and savings accounts. But it’s also a good idea to put at least some of your money into alternative investments such as real estate, precious metals, crypto and even collectibles such as rare coins. If your portfolio doesn’t include alternative investments, add a couple of those to bring more diversity.
Your Mutual Funds Are Not Properly Balanced
Ramsey Solutions offered a list of the following seven types of mutual funds that can bring balance to your portfolio: stock funds, index funds, bond funds, money market funds, income funds, hybrid funds and specialty funds. Within each of those categories are numerous subcategories, ranging from ETFs and target-date funds to commodity funds and socially responsible funds. As with stock holdings, make sure that your fund investments are spread fairly evenly between types to maximize your return.
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