Investors May Not Be As Diversified As They Think

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According to the Bureau of Labor Statistics1, when more than 1 million college graduates joined the workforce last autumn, they started the first of what could be seven job transitions throughout a 40-year working lifetime.

According to a recent survey by Fidelity Investments, one-third of today's new workers may be building a series of separate retirement savings accounts that aren't as diversified as they think2.

Millions of people are confronted with the increasingly difficult burden of maintaining their workplace retirement savings accounts with each job move.

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According to Jeffrey R. Carney, president of Fidelity Personal Investments, “as American employees continue to shift employment, our analysis shows that about 32 million have left behind retirement accounts with previous employers.”

“According to our study, 41% of investors with several retirement accounts think that having various accounts allows them to have a better diversified portfolio. While Americans are becoming more knowledgeable about investing, many have lost sight of what ‘diversification' actually means – distributing money among various forms of assets such as stocks, bonds, and cash to control risk – something that can't be achieved just by having many accounts.”

Fidelity discovered that many investors need to be reminded of three fundamental concepts for maintaining a diversified portfolio after evaluating the accounts of almost half a million individuals over the previous year. Know what you own, how much you owe, and when it's time to seek professional help.

Many multi-account investors are unaware of the composition of their overall assets and may be substantially overweighted or underweighted in a particular investing area or security.

Having several accounts not only adds to the paperwork, but it may also cost extra when maintenance costs are imposed by different providers.

“Many investors are astonished to learn that they are holding a range of mutual funds with higher-than-average expenditures or that they are paying more in fees by keeping many lower balance accounts,” Carney said.

Different accounts to manage and monitor through multiple statements and Web sites may add levels of difficulty for investors. Nearly a fifth of those with several accounts said it was difficult to keep track of them all.

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