Many times, when I meet with investors I am asked ‘where is the best place to put my money?’ The financial institutions have taught investors that there is someone who can tell them what to do in every circumstance.
These institutions lead you to believe they know what you need. In fact these institutions sell you ‘product’ to feed your fear in every environment.
A true advisor will often tell you things you do not want to hear. Remember if your advisor only provides the product you ask for they are not an advisor but rather a salesperson or broker.
To succeed in investing being diversified means looking different.
Most investors are narrowly diversified into top performing funds or asset classes of the last five to ten years. They often feel diversified but aren’t.
Right now, on May 20, 2019 the top performing funds are U.S. Large Growth stocks.
To be diversified means including asset 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’.
The goal of diversification is to avoid the volatility, both up and down. Right now, U.S. Large Stocks can do no wrong. However, when there is another downturn like 2001 these concentrated portfolios will suffer.
We need to capture the great returns the other asset classes provide, over the long term. The goal of our portfolios to earn the great market returns. With less volatility. That means over the long term you should capture the great market returns with essentially less risk.
Typically, investors want to concentrate in the ‘hot’ asset classes. If these investors are lucky they will match the great returns the market provides. In most cases they will not.
Of course, we must state that past performance is no indication of future results.
Many will say that ‘times have changed’. They will make a case that U.S. Large stocks will always prevail in the future. Because of the trade wars or whatever…
However regular readers will know that no one can predict the future. No one can tell you which asset classes will out-perform into the future.
To succeed in investing you must own equities….globally diverisify …rebalance.