welcome@mj-smith.com
Ph. 303-768-0007
M.J. Smith & Associates on FacebookMark Smith on LinkedIn

Why You Hate Diversification

Drew Harper, CFA, CFP®
April 5, 2018

I would guess that you’re a rational individual that wants to associate with the best and distance yourself from the inadequate.  This happens every day: you stop watching the Colorado Rockies (unless you have extreme hope or you’re a rare, devoted fan), attempt to send your children to the best school, buy a larger house, dump your old, ugly car and sell that investment your advisor told you to own for “diversification” purposes.

When you diversify, chances are your portfolio may underperform the best performing asset class in the short run, and you may feel like you don’t own enough of the best performer. However, your favorite asset class/position can quickly turn into your most hated.

You will (if you have not already) want to make changes.  If you act on your desire to sell the junk and buy the great, it will lead to losing the investment game.  Do not act on your rational desire to consistently own the best.  The best action is usually inaction.  Don’t continually adjust your portfolio or asset allocation to an “optimal” one because nobody can tell you with complete accuracy what that will be.  The complexities of financial markets across the world are impossible to forecast.  Evaluate your current portfolio in context of your goals, confirm that you have a strong probability of meeting your goals, and - most importantly - don’t change your plan now unless your goals have changed.

As we and many others have said before, the only rational way to approach investing for the long-term is with a diversified portfolio. It won’t necessarily help you make a killing, but it also won’t get you killed.  A rational, diversified portfolio will help you control your risk as you pursue your goals. We believe controlling risk is more important than stretching for higher returns.

Understand what you own, stay invested, rebalance, and eliminate changes based on emotions.  If you keep to your well thought-out plan, you will eventually love diversification.

Thank you for your feedback!
Sorry - something went wrong. Please try again or call us at 303-768-0007.

Any opinions are those of Drew Harper and not necessarily those of Raymond James. Diversification and asset allocation do not ensure a profit or protect against a loss. Investing involves risk and investors may incur a profit or a loss.  Every investor's situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

What If the Market Goes Down Again?

As of this writing, the markets hit a low point for 2020 on March 23. While we hope the lowest point is behind us, we know and understand that the current market shifts can be nerve wracking for investors. This post outlines some important points to consider if you’re concerned.

Read More
Client Access Features: Vault and Aggregation

The Vault and the Aggregation Tool are great features within the Client Access platform that can save time and energy down the road. Learn their advantages in this post.

Read More
Understanding the Child Care Contribution Tax Credit: A Follow Up

In December 2019, we introduced you to the Colorado Child Care Contribution Tax Credit (CCTC). This post explains the benefits of making a contribution with a qualifying charitable distribution from an IRA, which can be significant for taxpayers over 70 1/2.

Read More
What If the Market Goes Down Again?

As of this writing, the markets hit a low point for 2020 on March 23. While we hope the lowest point is behind us, we know and understand that the current market shifts can be nerve wracking for investors. This post outlines some important points to consider if you’re concerned.

Read more
Client Access Features: Vault and Aggregation

The Vault and the Aggregation Tool are great features within the Client Access platform that can save time and energy down the road. Learn their advantages in this post.

Read more
What If the Market Goes Down Again?

As of this writing, the markets hit a low point for 2020 on March 23. While we hope the lowest point is behind us, we know and understand that the current market shifts can be nerve wracking for investors. This post outlines some important points to consider if you’re concerned.

Read more

Questions?

Contact Us

Receive all of our firm's resources as soon as they become available:

Thank you!
Your submission has been received.
Oops! Something went wrong while submitting the form. Please try again or email welcome@mj-smith.com
Raymond James Privacy Notice
This is some text inside of a div block.