Using diversification to combat risk Diversifying investments mixes common sense and science Diversification — spreading your money among many different investments — attempts to take a middle road through the highs and lows of market performance, allowing your money the opportunity to grow regularly with fewer fluctuations along the way. What goes up usually comes down The reason for diversification is simple: By including a variety of investments in your portfolio, your risk is less than if you put all your money in one type of investment. All securities behave differently from one another, going up and down in separate cycles and to varying degrees. An individual stock is affected by a combination of different elements, including the overall stock market, health of the industry the company does business in, and the company's own performance. Though stocks generally vary more than fixed-income investments, fixed-income prices can be affected by changes in interest rates and the overall fixed-income market. Because investments react differently to market conditions and other factors, you may want to keep a well-diversified portfolio in order to balance out the ups and downs. Though you are not as likely to achieve a substantially large return with a highly diversified portfolio, you are attempting to protect your savings from short-term losses and allowing them the opportunity to grow over time. Diversification within and across asset classes Diversification can be achieved in many ways, for example: within an asset class (such as stocks) or across asset classes (such as stocks and bonds). In the first case, you are likely to have smaller swings of value over time in a portfolio that holds stock in a dozen different companies instead of one. You are likely to have still smaller swings of value if you add fixed-income investments, such as bonds, to your stock portfolio. Risk, or variability, of different markets can depend on national and international developments. Economic factors, such as production, employment, monetary policy, and levels of investment, influence markets for equities and fixed-income securities in different ways. How you diversify across asset classes, therefore, has a direct effect on the amount of risk, or variability of returns, you are likely to have. Practicing diversification in your savings plan Mutual funds that invest in both stocks and fixed-income investments (balanced funds) offer one way of diversifying both across and within asset classes. Another way of diversifying is to choose your own mix of investments, rather than invest in a fund where the mix is determined by someone else. However, if you take this route, you need to be more diligent about evaluating your choices and may want to get assistance from a professional advisor. Two simple rules When diversifying your investments, remember to: 1. Reduce "security-specific risk." Purchase a broad range of investments across various companies and industries rather than a limited selection of individual securities. This way, no single investment will dominate the performance of your retirement account. 2. Spread your money across the different asset classes: stocks and fixed income. Each asset class has its own unique risk and return attributes. And because the risks of one asset may complement the risks of another, it may be possible to achieve higher investment earnings and reduce your portfolio's volatility. Fund objectives, risks, charges and expenses should be carefully considered before investing. For a prospectus containing this and other important information call Russell at 1-866-676-7680 or go to the prospectus and reports page to download one. Please read the prospectus carefully before investing. Copyright © Russell Investments 2005. All rights reserved. This material is proprietary and may not be reproduced, transferred, or distributed in any form without prior written permission from Russell Investments. It is delivered on an as is basis without warranty. Russell Investment Group is a Washington, USA corporation, which operates through subsidiaries worldwide, including Russell Investments, and is a subsidiary of The Northwestern Mutual Life Insurance Company. Nothing contained in this material is intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. The general information contained in this publication should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional. Diversification and strategic asset allocation do not assure profit or protect against loss in declining markets. Bond investors should carefully consider risks such as interest rate risk, credit risk, securities lending, repurchase and reverse repurchase transaction risk. Greater risk is inherent in portfolios that invest primarily in high yield bonds. They are subject to additional risks, such as limited liquidity and increased volatility. Although stocks have historically outperformed bonds, they also have historically been more volatile. Investors should carefully consider their ability to invest during volatile periods in the market. Please remember that all investments carry some level of risk, including the potential loss of principal invested. They do not typically grow at an even rate of return and may experience negative growth. As with any type of portfolio structuring, attempting to reduce risk and increase return could, at certain times, unintentionally reduce returns. Securities products and services offered through Russell Financial Services, Inc., member FINRA, part of Russell Investments. For information on the Financial Industry Regulatory Authority, go to www.finra.org. RFD 05-5590. First used: November 2005.			Multi-manager investment solutions LifePoints® Funds Russell mutual funds Separate accounts Printer friendly version of this page Send feedback or comments

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