We have put together the above short video commentary to talk through a question we have received lately regarding diversification and the S&P 500. Specifically, why diversify when one investment has been the best performer for so long? Over the next few minutes we share data behind why we have that feeling, the reason for diversifying, and how sometimes it can feel like you are losing but still win.
Below is a very brief summary outline of this video:
- This year and the last 10 years has had one theme in regard to performance: S&P 500 dominance
- Diversification is meant to do one of two things: enhance returns or reduce risk. Even with the right asset classes and intentions, this does not always work. But, that does not mean you should stop trying.
- By taking a step back and looking at the last two decades, we have seen diversification work tremendously well. It did not feel that way throughout though. Surprisingly, it has both reduced the risk and increased the return. This is not at all to say that it always will but do not get caught up in the short-term “focus on what’s winning” game.