Why Is Diversifying My Investment Portfolio So Important? Virtually any investment has some risk associated with it. The stock market rises and falls. An increase in interest rates can cause a decline in the bond market.The key to successful investing is to reduce that risk while maintaining an attractive return on your investments. One of the most effective ways to help manage your investment risk is to diversify.The main philosophy behind diversification is really quite simple: "Don't put all your eggs in one basket." Spreading the risk among a number of different investment categories - stocks, bonds, money market instruments, for example, or over several different industries, can help offset the loss in any one investment.Likewise, the power of diversification can smooth your returns over time. As one investment increases, it offsets the decreases in the other, and vice versa. By reducing the impact of market ups and downs, diversification can go far in enhancing your investing comfort level.Diversification is one of the main reasons why mutual funds are so attractive for both experienced and novice investors.For a modest initial investment - often as little as $250 - you are purchasing shares in a diversified portfolio of securities. You have "built-in" diversification. Depending on the objectives of the fund, it may contain a variety of stocks and bonds, or a combination of the two.Mutual funds can be an easy and effective way to build a portfolio. They can help you save and invest for long-term growth or current income.Diversification does not guarantee against loss; it is a method used to manage risk.Mutual funds are sold only by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.