The Path to Diversification Financial Professionals Can Help Navigate Pitfalls You may know an investor like "Ralph." He swears he was diversified in the late 1990s before the equity markets retracted. "After all," he insisted, "I had five mutual funds." What Ralph didn't say, and maybe wasn't even aware of as he based his buy decisions strictly on performance, was that all five were large-cap growth funds. Diversification? Hardly. It's not unlikely that the overlap in all the funds meant his investments were controlled by a small group of stocks. That's why the value of his portfolio slipped to half what it was before March 2000*. Diversification is often easier to talk about than to understand — or achieve. That's why the value of an objective financial professional has become increasingly important. "In some cases, a financial professional's role is to get clients to do what they might not do on their own — for their own good," said Russell's Jim Guilfoil. By investigating a client's needs, tendencies and investing experience, a financial professional can craft an investment policy statement that mutually defines risk parameters as they relate to expected returns across an appropriately diverse collection of assets. Selecting investments can then be done in the context of finding those that complement each other rather than compete with each other. Ideally, the implementation and monitoring of the designated portfolio provides the investor greater potential to achieve defined goals. Most importantly, those goals can be pursued with management of risk and volatility in mind, helping to pacify an investor's anxieties. "Financial professionals aren't always just stock pickers," Guilfoil says. "They create a holistic financial plan, which may include insurance components, and estate and business planning. Then they help the investor stick to the plan. Investment vehicles are just the means to fulfill it." The Importance of Staying in the Market Just as a personal trainer motivates someone to stick to a health and fitness plan, a financial professional's expertise encourages an investor to stay in the market through its ups and downs. The advantage? A retreat to cash eliminates any opportunity to take part in a rally from the start. The disadvantage is the investor may lose all of his or her investment before the market makes that rally. "Investors who go out of the market during difficult times, then jump in only after it has roared back, tend to buy high and sell low — the opposite of conventional wisdom," Guilfoil said. Prudent investing plans also encourage holding a reasonable percentage of asset classes and styles when they are out of favor. History shows that investors are often better off not just to stay in the market but to stay in all of the market. Although holding a diversified portfolio of asset classes and styles does not assure a profit or guarantee against loss in declining markets. The willingness to hold or buy out-of-favor assets and the counter, selling recent assets of excess return, both reach the core of willpower and psychology of investing. It is at this level that the relationship with a financial professional can be most beneficial. Real-World Expectations Ultimately, a sound financial plan is one weighted toward balanced perspectives that don't waiver when a stiff breeze temporarily changes the way the market-leading flag blows. Knowing that your asset allocation is diversified and in tune with realistically attainable goals that equate to your risk tolerance should be comforting, if not exciting, as your future is unveiled. Ultimately, investors with diversified assets and an understanding of why they hold what they do will have "charted their future based on reality, not wishful thinking," Guilfoil said. * This hypothetical example is for illustration only and is not intended to reflect the return of any actual investment. Investments do not typically grow at an even rate of return and may experience negative growth. Fund objectives, risks, charges, and expenses should be carefully considered before investing. A prospectus containing this and other important information can be obtained by calling (866) 676-7680 or by visiting this page on russell.com. 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 Investment Group. 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 does not assure a profit or guarantee against loss in declining markets. Past performance is not a guarantee of future performance. Russell 1000® Index: Measures the performance of the 1,000 largest companies in the Russell 3000® Index, representative of the U.S. large capitalization securities market. Russell 2000® Index: Measures the performance of the 2,000 smallest companies in the Russell 3000® Index, representative of the U.S. small capitalization securities market Securities products and services offered through Russell Financial Services, Inc. (formerly Russell Fund Distributors, Inc.), member FINRA, part of Russell Investments. For information on the Financial Industry Regulatory Authority, go to www.finra.org. RFD 3475. First used: November 2005.			Related CONTENT Value of Diversification (PDF) Single vs. Multi-Asset Portfolios (PDF) The benefits of working with a financial professional   Russell IN ACTION See how Russell's investment approach is put to work in the following products: LifePoints Funds Russell Funds Separate Accounts Institutional Funds     Expert INSIGHTS Printer friendly version of this page Send feedback or comments Site Search

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