Diversification helps manage risk

DC participants can take advantage through target date funds

By Michael Pramik, Ohio Public Employees Retirement System

Oct. 1, 2026 – Investing for the future can be challenging. Markets are unpredictable, and stocks, bonds and other assets that produce strong returns one year can turn in disappointing results the next.

OPERS investment professionals manage this uncertainty through diversification. It’s the familiar concept of not putting all your eggs in one basket. By investing in a variety of assets, you can reduce the risk that poor performance in one area will have an outsized effect on your overall portfolio.

The idea is fairly simple. Different investments respond differently to changing economic conditions. When stocks decline, for example, bonds or other investments may help offset some of those losses. Ideally, a diversified portfolio contains assets that don’t always move in the same direction. Some will zig while others zag.

Consider two extremes: a portfolio consisting of a single stock and one consisting of 500 stocks. If you own just one stock, your investment depends entirely on the fortunes of that company. Owning 500 stocks spreads that risk across many companies. A setback at one company is less likely to significantly affect your overall investment.

But owning hundreds of stocks doesn’t eliminate market risk. If the entire stock market declines, even a portfolio containing 500 stocks can lose value. That’s why diversification across asset classes – such as stocks, bonds and alternative investments – is important.

Recent market history provides a useful reminder. In 2022, both stocks and bonds experienced substantial losses as inflation and rising interest rates affected financial markets. The experience demonstrated that diversification can help manage risk, but it cannot eliminate losses or guarantee positive returns.

For OPERS members participating in the Defined Contribution Plan, target date funds offer a convenient way to achieve diversification. Each fund invests in a mix of underlying investments and is designed for members who expect to retire around a particular year.

Target date funds also automatically adjust their investment mix over time. Generally, they hold more stocks when retirement is many years away and gradually shift toward a more conservative allocation as retirement approaches. This approach seeks to balance the need for long-term growth with the importance of managing risk.

A target date fund can serve as a complete retirement investment portfolio, eliminating the need to select and manage several individual funds. However, members should understand that these funds are not guaranteed investments, and their value can decline. The appropriate fund also depends on an individual’s retirement plans and tolerance for risk.

Diversification remains important after retirement, too. Retirees may need their savings to last for decades, making it important to balance investments that provide growth with those that help manage market volatility.

Whether you’re just beginning your career, approaching retirement or already retired, the basic principle remains the same: Diversification can help you manage investment risk without having to predict which investments will perform best.