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Having a diverse portfolio means you have your investments or savings in more than one area.

It’s good to have investments in low-risk, medium-risk, and higher-risk investments, as well as in different asset categories (stocks, bonds, mutual funds, CDs, and savings accounts) and in different industries. In addition, if you have several mutual funds, each fund should invest in a different market sector.

This is called having a diversified portfolio, and by not having all your financial “eggs” in one basket, it helps you not be exposed to downturns that may affect one sector of the economy but not another.

Mutual funds

When you invest in a mutual fund, the fund uses your money and money from other investors to buy shares of stocks or bonds in several different companies. A mutual fund may focus on a certain market sector, such as biotechnology stocks, or it may focus on investments with certain anticipated returns.

If the value of the stocks or bonds declines, the value of the mutual fund may go down. Unlike a deposit you make in a savings account with a certain guaranteed interest rate, the amount you earn in a mutual fund is not guaranteed.

Because you can choose from a diverse selection of mutual funds, these are usually good choices to invest in for your long-term goals such as retirement. Another benefit of investing in a mutual fund is that portfolio managers oversee the fund and the choices of investments within it, sparing you the time to research individual companies you may want to invest in.

Stocks and bonds

When you buy stock in a company, you become a part owner of that company. If the company does well, you make money because the value of the stock increases. You also may receive part of the company's profit in the form of a dividend. A dividend is the sum of money paid to shareholders of a corporation out of earnings. Dividend checks are usually disbursed quarterly or yearly. The risk of stocks is that there is no guarantee that they will increase in value, and some stocks even lose most of their value because of bad business decisions of the managers of the company or bad timing bringing a product to market.

When corporations, the U.S. treasury, or municipal governments need to raise money, they often issue bonds. The bond states the amount of the loan, the interest to be paid, how often the interest will be paid, and how long it will take to repay (usually 1 to 30 years). When you buy a bond, you are essentially loaning the corporation or government money. In addition to earning a usually favorable interest rate, you may have tax advantages when you buy certain bonds, meaning you won't be taxed on the interest you earn from the bond. Bonds are called "fixed income" investments because the issuer pays a set interest rate over the life of the bond. The amount you loan the bond issuer (your original investment) is returned when the bond "matures" at the end of the bond agreement.

Buying stocks and bonds can be more risky than investing in a mutual fund. However, if you are careful to invest in a broad range of stocks and bonds, your portfolio will be diverse and you won't be as susceptible to downturns in a market because your money is not invested in a single investment area.

Retiring—the day will come

Retirement is a long way off. But even if you start saving with just a small amount early on, your money will have many more years to work for you. The earlier you start saving, the more income you'll have when you do decide to retire, change careers, or pursue hobbies.

Unfortunately it's not a sure bet that Social Security or other government programs will be adequately funded when you reach retirement age. It's best to save for yourself so you can ensure you'll have a healthy nest egg of funds later in life.

After you graduate and get your first job, check to see if your employer offers a retirement plan. If so, take advantage of it and contribute all you can. This is especially true if your company provides matching contributions. At the very least, contribute the amount necessary to receive the company's match. This really is free money going into your account.

You'll receive good tax breaks if you contribute to a retirement plan. If your employer doesn't offer one, or if you decide to be self-employed, you can set up your own Individual Retirement Account (IRA) or Simplified Employee Pension Plan and contribute money to it every year. You may need to check with a financial planner or accountant for help when you are ready to set up a plan. If you are not able to afford a financial planner or accountant, educate yourself using online resources such as www.investoreducation.org.

You have many years ahead of you-years to have fun, grow in your career, fulfill your dreams, and attain your goals. It's easy to put off saving money until next week, next month, or next year, but it really is true that the sooner you start, the more you will have to show for your efforts.