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In this edition of The Motley Fool’s “Ask a Fool” series, Motley Fool analysts Jason Moser and Brendan Mathews take a question from a reader who asks, “How can we truly know if we are diversified?”
Jason and Brendan both see diversity as a somewhat subjective measure as it depends on where the investor is in his or her investing life along with their tolerance for risk. Investors who are in the stage of trying to grow their wealth for example may want more exposure to stocks for example. One of the simplest vehicles for diversity in this case can be an index fund pegged to the S&P 500 which will give an investor outstanding diversity with low costs. Investors who are closer to retirement though are more focused on protecting their wealth however and will want to add more fixed-income investments into their portfolio in order to minimize risk while still maintaining exposure to a reasonable rate of return. Either way, diversity is in the eye of the beholder and will require some self-examination in any situation.
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