Many Eggs; Many Baskets: The Importance of Global Diversification
As we wrote about back in April (10 Ways To Not Sweat The Small Stuff With Investing), market volatility has once again picked up. If you’re like most, this is a news story that will take your attention from time to time. So with that said, we felt like it was a good time to underscore the perennial value of building – and maintaining – a globally diversified investment portfolio for achieving your greatest financial goals.
Global diversification is such a powerful antacid for when (not if!) we experience market turbulence, it’s why we’ve long recommended spreading your market risks:
- According to your personal goals and risk tolerances
- Between stock and bond markets
- Among evidence-based sources of expected long-term returns
- Around the world
In short, broad, global diversification never goes out of style.
Breaking news shows us why.
Just a few short days ago, third quarter market performance numbers were rolling in, and some globally diversified investors may have begun to question their resolve after comparing their year-to-date returns to the U.S. stock market’s seemingly interminable ability to whistle past the graveyards of disappointing, portfolio-dampening performance found elsewhere.
Some may be wondering: “Should we dump diversification, and head for the ‘obviously’ greener pastures where U.S. stocks reside?”
We aren’t the only ones advising investors against turning a cold shoulder to their well-structured portfolio. In his timely September 28 column, Wall Street Journal personal finance columnist Jason Zweig commented: “Looking back in time from today, U.S. stocks seem to have dominated over the long run only because they have done so extraordinarily well over the past few years.”
As current conditions starkly show, there’s a reason for the expression, “Things can turn on a dime.” Whether it’s U.S. stocks, international bonds, emerging markets or any other sources of expected return, the evidence is clear: Trends rise and fall among them all. This we know. But precisely when, where, how much, and why is anybody’s guess. As Zweig suggests in his piece, “Markets tend to lose their dominance right around the time it seems most irresistible.”
We may be in for a bumpy ride for a while, as is always the risk with investing. By the time you’re reading this, prices may still be tumbling, or they may already have recovered their footing. We can’t say.
What we can say, is that we hope you will reach out to us for help if and when you need it.
Have current conditions left you troubled, unsure of where you stand? Let’s talk. We’ll explore whether you’re able to sit tight with your existing strategy, or whether we can help you think through any next steps you may be considering. Most of all, know you are not alone. We are here as your sounding board and fiduciary advisor. Your best interests remain our top priority.
Are you reflecting calmly on current events, recognizing that market volatility happens? Allow us to applaud you for your perspective and remind you: Current conditions likely represent a time for continued quietude, along with ongoing attention to managing your tailored portfolio.
Regardless of your temperament, we’d like to share a sentiment from Behavior Gap author Carl Richards’ 2015 New York Times column. We believe his point remains as relevant as ever:
“On a scale of 1-10, with 10 being abject misery, I’m willing to bet your unhappiness with a diversified portfolio comes in at about a 5, maybe a 6. But your unhappiness if you guess wrong on your one and only investment for the year? That goes to 11.”
With this said, we’re human too. So please reach out to us if we can answer any questions or scale down any angst you may be experiencing.
Past performance is no guarantee of future results. Investments involve risk and unless otherwise stated, are not guaranteed. Diversification does not ensure against a loss. Be sure to first consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed on this or any other newsletter.