Importance of Diversification
A longstanding investment cliché cautions investors to avoid putting all their eggs in one basket. If your money is narrowly invested in one or just a couple of investment sectors, an unforeseen hit could be difficult to withstand. Any investment can be considered a risk. Even “safe” investments can be risky insofar as they may pay such paltry interest that the money invested in them is losing ground to inflation. But if your investment eggs are spread around in diverse baskets of different types of investments, then the risk of big losses of capital or purchasing power is reduced. That’s the essence of diversification.
Diversification is a technique that reduces risk by allocating an investment portfolio among various financial instruments, industries, or other categories. It aims to moderate the inevitable fluctuations in investment values by investing in different areas that would each react differently to the various events that affect the investment markets.
A well-diversified portfolio is essential for moderating investment risk and helping you achieve your financial goals. Our process encompasses worldwide investment opportunities among a wide range of asset classes. Throughout the year we may employ moderate tactical shifts within a portfolio to capitalize on current investment opportunities, but we avoid chasing “hot investments” or making big bets on a particular market sector.
We use a gradual, step-wise plan to implement the diversification best suited to your needs. Taking into account current market conditions and economic trends, we review your portfolio on an ongoing basis and evaluate possible adjustments.
The "lost decade" wasn't so bad for diversified investors.
You may have seen one of the plethora of news reports that highlighted the last ten years as "the lost decade" for investors because the Standard & Poor's 500 Stock Index (including dividends) lost 10% of value between 2000 and 2009.
But while the first decade of the New Century was hardly a great one for investors, those who were well diversified most certainly did not suffer a lost decade.
In fact, mid-cap stocks gained 55% over the decade, small caps 85%, and international stocks 25%. Even lowly bonds rose 95% from 2000 through 2009. That's why diversification, rather than selecting a hot investment, and consistency, rather than selling investments when the markets are falling, are so crucial to achieving sound investment results.