Diversification Is Your Buddy

Given the events of the past few weeks, many investors are considering moving their money out of the stock market.

 

Since no one can predict the future, this is a huge mistake.

 

You must decide if you are a gambler/speculator or an investor. Gamblers believe they can out guess the market and avoid all losses. The gamblers have proven numerous times to be wrong in the long run. One may get ‘lucky’ but no one can consistently market time.

 

In markets like these diversification is your buddy.

 

Proper diversification spreads risk across various asset classes with varying return characteristics or dissimilar price movement. Simply said: they don’t do the same thing at the same time. Most investors are narrowly diversified into top performing funds or classes of the last five to ten years. They often feel diversified but aren’t. To be diversified means including classes or types of funds in your portfolio that did poorly over the last five to ten years. If you do this, your portfolio will look and perform very differently from your neighbors’ or friends’. Those of you which are my clients own portfolios which are professionally diversified and rebalanced much like the large pension funds.

 

Over time these portfolios will help you successfully accomplish your investment goals.

 

To succeed in investing you must own equities….globally diversify…..rebalance.

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