How should I diversify mutual funds in my portfolio?

What diversification of mutual funds should I hold in my account to keep my portfolio growing at a stable rate? I know if I invest too heavily in index funds, and only index funds, when the market crashes, my portfolio will sink. How many funds and what funds is a good amount for diversification (i.e. 1 growth, 1 small cap index, 1 bond)?

Investing, Asset Allocation, Mutual Funds
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March 2017
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Thank you for your question. It looks like you could use some guidance on how to build a portfolio before you invest your hard-earned money. My philosophy is that the best result for investors is when they focus on understanding their own tolerance for risk first. Then build a diversified portfolio that perfectly matches their own risk tolerance. Review your progress towards your goals. This creates a perfectly matched portfolio to their Risk Number and a systematic way to measure your progress and adjust along the way. This can be accomplished in three easy steps:

First, capture Your Risk Number. The first step is to answer a 5-minute questionnaire that covers topics such as portfolio size, top financial goals, and what you’re willing to risk for potential gains. This will pinpoint your exact Risk Number to guide the decision-making process.

Align Your Portfolio. After pinpointing your Risk Number, create a portfolio that aligns with your personal preferences and priorities, allowing you to feel comfortable with your expected outcomes. The resulting proposed portfolio will include projections for the potential gains and losses you should expect over time.

Meet Your Investment Goals. Review your progress toward your financial goals by building an Investment Map. When you finished this process, you’ll fully understand what is possible to increase the probability of success.

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