Diversification boosts chance for good returns


If you ever needed proof that asset-diversification works, consider this example by Dean Witter:

If you invested $100,000 for 25 years in an interest-bearing product yielding 8 percent, your investment would be worth $684,850 at the end of the period, assuming all dividends were reinvested.

But what would happen if you divided the $100,000 evenly among five investments -- $20,000 in each -- with the following results?

* You lost every dime of the first $20,000.

* You broke even on the second $20,000.

* You earned 5 percent a year on the third $20,000.

* You earned 10 percent a year on the next $20,000.

* You earned 15 percent a year on the final $20,000.

Despite the poor performance of the first two investments, you still would end up with $962,800 after 25 years.

That's $277,950 more than in the first example.

By spreading your money around, you stand a better chance of having some of your assets in a place where they will grow, even if some of your other investments perform poorly.

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