The First Level of Diversification in the Russell Investment Approach 

Different asset classes have different risk and return characteristics. Your portfolio should combine them in a way that meets your objectives and your need for stability. Finding the combination that is right for you will help give you the comfort to adopt a long-term investment discipline.

Some examples of different asset classes include:

• U.S. stocks  
 
• Emerging market stocks  
 
• International stocks  
 
• Bonds  
 
• Treasury bills (cash)  
 
• Real estate  
 

A portfolio built with Russell funds can include each of the major fields of investment, in proportion to your objectives.

Each portfolio is diversified into multiple asset classes.

The most widely accepted way to reduce the risk of investing is diversification—spreading money among a variety of investments as opposed to investing in just one.

Because diversification can lower risk, you can select asset classes (such as small stocks or international equities) that alone could be more volatile but as part of a mix give you a higher potential for returns.

For example, investing solely in U.S. stocks can bring strong returns. But it can also mean you may be in for a wild ride in market fluctuations.

To avoid this ride, some investors will put their money in lower-risk investments like government and corporate bonds, which have historically tended to experience less market fluctuation than stocks. But these assets also tend to have lower returns. Taxes and inflation can also eat away much of those returns, making it difficult to reach your investment goal.

The chart below shows you that by combining stocks and bonds you get a mix that may offer higher returns than bonds, with less risk than stocks.

Source: Stocks: S&P 500 Index. Bonds: S&P High-Grade Bond Index (1954-1973), Lehman Brothers Long-Term High Quality Government/Corporate Bond Index (1974-1975), Lehman Brothers Aggregate Bond Index (1976-2003). Past performance does not guarantee future results.

Potentially, quite a lot, if you take a long-term view. Over time, perhaps you'll find you can increase your returns by 1% or 2%. Though that might not seem like much in the short run, small increases, earned regularly and compounded over the years, make a big dollar difference in the long run.

Russell funds are available from investment professionals who use sophisticated asset allocation technology. With this they can build a portfolio designed according to your investment goals and risk tolerance to create funds that meet your individual needs, giving you the comfort to adopt a long-term investment strategy.

Russell will help you understand your options and fine-tune your portfolio until you're satisfied it's just right for your needs.

After you've determined the right way to allocate your investment among asset classes, Russell can help you further manage risk by helping you diversify within asset classes. For example, if you decide to allocate a portion of your portfolio to U.S. stocks, you can diversify that portion to include different styles of stocks, such as growth, value, market-oriented, or small capitalization. This way, when one style goes out of favor with the market, the overall effect on your portfolio is reduced.

You should carefully consider the investment objectives, risks, expenses and charges of the investment company before you invest. Your Northwestern Mutual Investment Services Registered Representative can provide you with a prospectus that will contain the information noted above, and other important information that you should read carefully before you invest or send money.