Is Your Portfolio Really Diversified?

David Fabian

There is an old saying on Wall Street that if you arenai??i??t worried about something in your portfolio, then you probably arenai??i??t diversified enough.

This notion certainly comes to mind when identifying positions with varying degrees of correlation to create a unified investment strategy.wall street

In my opinion, diversification is a tremendous tool to spread risk among multiple asset classes.

The more diversified you are, the greater chance you are going to own some investments that are doing well and others that are falling behind.Ai?? These trends can often extend for very long periods of time.

Just look at the 5-year returns of stocks, bonds, and commodities through the lens of diversified exchange-traded funds.Ai?? The performance of each asset class varies widely.


Of course, no one knows exactly which type of investment or sector is going to be the best ahead of time.Ai?? That is why we tend to be foolhardy and focus on short-term performance of individual positions rather than the sum of the parts.

Investors are constantly worried about what isnai??i??t working right.Ai?? Should I sell my municipal bond fund?Ai?? Itai??i??s down -4%.Ai?? Am I in the right stock fund?Ai?? Others are doing better than mine.Ai?? Do I need to own gold?Ai?? Itai??i??s up +7% this quarter.Ai??Ai?? The comparative analysis goes on and on.

The concept that gets lost along the way is how the overall account is performing. Is your asset allocation in line with your risk tolerance?Ai?? Do you own low-cost investments that are keeping pace with the market?Ai?? Is your one, three or five-year total return similar to a diversified benchmark?

If the answer is yes, then you are going to have an easier time relinquishing some anxiety over small positions that underperform for a time.Ai?? If the answer is no, then you are going to face a much higher degree of stress about each individual holding.frustration2_med.jpg

Itai??i??s the difference between being able to see just the individual trees or the entire forest.

I also want to emphasize the danger of your portfolio being too overtly correlated even if its technically in multiple asset classes.Ai?? Put simply, if everything is firing on all cylinders, then you probably own assets with similar risk and performance characteristics.

For example, stocks and high yield bonds typically move in a similar fashion.Ai?? If your portfolio is primarily made up of these two areas, a downturn in both equity and credit conditions can lead to a protracted period of underperformance.

It may behoove you to consider broadening your portfolio to higher quality bonds or other areas demonstrating diverging price correlations.

etfsIai??i??m not one to advocate that you need to own the total global investable marketplace.Ai?? You can gently shape your exposure to certain themes without wild deviation from a sensible investment strategy.

That may include discretion over security selection, position sizing, and even minimum or maximum exposure limits.

In my opinion, ETFs and low-cost mutual funds are the best vehicles to achieve this outcome in a sensible and cohesive manner.Ai?? These tools come with the diversification baked right into the cake and are appropriate for virtually every style of investor.

Until next time,

David Fabian

David Fabian is a Managing Partner at celebrex buy online, Zoloft reviews. FMD Capital Management, a fee-only registered investment advisory firm specializing in exchange-traded funds. He has years of experience constructing actively managed growth and income portfolios using ETFs. David regularly contributes his views on wealth management in his company blog, podcasts, and special reports.Ai??

The information contained within this article solely reflects the opinion and analysis about the performance of securities, investments and financial markets by the writer whose articles appear on this site. The views expressed by the writer are not necessarily the views of Weiss Educational Services, its affiliates or members of its management. While Weiss Educational Services and its affiliates accept editorial content from outside contributors, the content provided herein has not been independently verified for its accuracy. Nothing contained in this article is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Information provided on the website is for educational purposes only. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Weiss Educational Services writers, its affiliates and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Nothing on this website is intended to solicit business of any kind for a writer’s business or fund. Weiss Educational Services, its affiliates, management and staff as well as contributing writers will not respond to emails or other communications requesting personalized investment advice.

is there a way to get avanafil cheaper.