Diversifying your investments means spreading your money across different types of investments to reduce risk. These different types are often called asset classes. Here’s a breakdown of common asset classes to help you understand your options.  

Reminder! This is general information—not financial advice. For personalized guidance, consult a licensed financial advisor. 

Cash Investments

Cash investments include savings accounts, money market accounts, and certificates of deposit (CDs). These options are considered low risk because your principal is generally secure and protected by insurance (e.g., FDIC insurance up to $250,000 in the U.S.). 

Pros:

• Safe and liquid—perfect for short-term savings or emergency funds 

• Low risk of losing principal 

Cons:

• Low interest rates mean your money might lose value over time due to inflation. 

Fixed-Income Securities (Bonds) 

Bonds are essentially loans you give to governments or corporations in exchange for regular interest payments and the return of your principal at the bond’s maturity date. 

Pros:

• Lower risk than stocks 

• Predictable returns through interest payments 

Cons:

• Sensitive to inflation and interest rate changes, which can reduce the value of bonds.

Stocks (Equities) 

When you buy stocks, you own a small part of a company. You can invest directly in individual companies or through mutual funds and exchange-traded funds (ETFs). 

Pros:

• Potential for higher returns compared to other asset classes 

• Investing in funds spreads risk across many companies and industries 

Cons:

• Stocks can be volatile, and their value may fluctuate based on market conditions. 

Real estate 

Investing in property can mean owning physical real estate or investing through real estate investment trusts (REITs), which pool money to buy commercial properties like offices, warehouses, and shopping centers. 

Pros:

• Potential for steady income through rental payments 

• Property values often rise over the long term 

Cons:

• Illiquid—your money is tied up in property until you sell 

• Market fluctuations can reduce property values or rental income 

Why diversify? 

If all your investments are in one type of asset, you could be at risk if that asset underperforms. Diversifying across asset classes, such as a mix of cash, bonds, stocks, and real estate, can help balance risk and reward. 

What’s next? 

1. Learn about risk and reward: Check out investment guides from resources on Investor.gov to understand the basics. 
2. Make an investment plan: Assess your goals, timeline, and risk tolerance to determine the right mix of assets for you. 
3. Use online tools: Tools like Empower can help you analyze and balance your portfolio. 
4. Consult a financial advisor: A licensed advisor can provide personalized recommendations based on your unique situation. 

Disclaimer: This content is for informational purposes only and does not constitute financial advice. Always consult with a financial professional before making investment decisions.