One way to balance risk and reward in your investment portfolio is to diversify your assets. This strategy has many complex iterations, but at its root, it’s simply about spreading your portfolio across several asset classes. Diversification can help mitigate the risk and volatility in your portfolio, potentially reducing the number and severity of stomach-churning ups and downs. Remember, diversification does not ensure a profit or guarantee against loss.

  • Diversification can help reduce risk.
  • Diversification among assets with low correlations to one another can further reduce risk.
  • Diversification is important because we have no way of knowing which investments or asset classes will perform well or poorly or when.

Is it possible to over-diversify? Of course, it is. We have seen other investment firms simply put their clients’ money in a “computer program” buying mutual fund positions of less than 3% Does such a small position offer diversification? We think not. We believe it is important to have some conviction with a trend or idea. We believe this is how we add “Alpha”* to the portfolios. But we always keep in mind that portfolio diversification is an integral part of all our client’s portfolios and a properly diversified investment portfolio, tailored specifically to our client’s risk tolerance, can help towards preserving our client’s wealth from the whims of the market.

* The return on an investment that is not a result of general movement in the greater market but the value that a portfolio manager adds to or subtracts from a portfolio’s return.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio.  Diversification does not protect against market risk.  The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.