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Owners’ Manual Principle 3: Diversify

Be optimistic but take precautions.

While almost all investors suffer losses in market downturns, this chart shows how diversification moderated the risk in the last two bear markets and ultimately led to higher returns.

Diversification helps cushion market blows.

From 2000 to 2002, the S&P 500® experienced a 45% loss versus 21% for a blended portfolio

From 2007 to 2008, the S&P 500 saw a 51% loss versus 31% for a blended portfolio.

About this chart. The blended portfolio is a hypothetical portfolio consisting of 60% stocks and 40% bonds. The portfolio is rebalanced annually. Returns include reinvestment of dividends, interest, and capital gains. Indexes are unmanaged, do not incur fees or expenses, and cannot be invested in directly. Fees and expenses would lower returns. Past performance is no indication or guarantee of future results. Source: Schwab Center for Financial Research with data provided by Morningstar, Inc.

More about this chart.

Stocks are represented by total annual returns of the S&P 500® Index, and bonds are represented by total annual returns of the Barclays U.S. Aggregate Bond Index.

How’s your diversification? Ask yourself:

Do I hold a mix of investments?

Does your portfolio contain different types of investments such as stocks, bonds, and cash equivalents that tend to move in opposite directions as markets change?

Am I relying on a single investment’s performance?

Does my portfolio’s success depend too heavily on the performance of any single stock, bond, or investment?

Am I over-concentrated?

Are my holdings overly concentrated in a single industry, sector, or country?

Are my mutual funds and ETFs as diversified as I think?

Am I less diversified than I think because my mutual funds and ETFs contain many of the same stocks, bonds, or other securities?

Let’s review your portfolio together to make sure that you’re well diversified.

Let’s talk.

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Note: Diversification strategies do not ensure a profit or protection from loss in declining markets. Risk management examples presented are for illustrative purposes only and are not intended as specific investment advice.

Important information

Fixed income securities are subject to increased loss of principal during periods of rising interest rates. Fixed income investments are subject to various other risks, including changes in credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications, and other factors.

International investments involve additional risks, which include differences in financial accounting standards, currency fluctuations, geopolitical risk, foreign taxes and regulations, and the potential for illiquid markets.

Small-cap securities are subject to greater volatility than those in other asset categories.

For general educational purposes. Nothing in this document should be considered a solicitation or a recommendation by Schwab to buy, sell, or continue to hold securities or other investments or to open an account.

Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.

Schwab refers to our investment professionals as Financial Consultants. There are certain eligibility requirements if you are interested in working with a dedicated Financial Consultant.

Products with lower fees do not guarantee higher returns or that investors will experience lesser losses during periods of market decline.

The implementation of any recommendations made as a result of advice provided may result in trade commissions or other fees, charges, or expenses.

Investments and investment strategies are not without risk, including the potential loss of principal invested. Past performance is not an indicator or guarantee of future results.

Terms referenced throughout this manual describing our relationship with you, as well as services referenced throughout this brochure, are brokerage services provided by Charles Schwab & Co., Inc. We offer our clients planning assistance, educational content, research, and other services that are without a fee and incidental to Schwab acting as a broker-dealer. When we work with you as a broker-dealer, we do not make investment decisions for you or manage your accounts on a discretionary basis. No part of this manual shall be interpreted by any party as Schwab acting as a registered investment advisor and providing investment advisory services, such as ongoing discretionary portfolio management for a fee.

The Schwab Center for Financial Research is a division of Charles Schwab & Co., Inc.

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