Diversification helps in Long Run

[mickeyd]

Article is about how asset allocation diversification constitutes one of the key factors in long-term success of an investment plan. This piece contains nothing new to this educated gang but it reinforces, to me, the significance of staying diversified with my investments.

Asset allocation constitutes one of the key factors in long-term investment success. When designing a portfolio that meets your risk tolerance, you as an investor need to realize that a portfolio of 50% stocks likely obtains approximately half the gain when the market advances, but suffers only half the loss when the market declines.

Of course not. Year after year, we don’t know which asset category will provide the best return; a diversified portfolio gives the best odds that we hold at least a piece of each year’s big winner. Large-caps that won big this year may easily lose big the next.
Don’t be overly concerned if your diversified portfolio underperforms against a non-diversified benchmark over a short period. Long-term results must mean more to you than short-term swings.

Star News | Diversified? Look Long-Term

 

[freebird5825]

I totally understand this..."When designing a portfolio that meets your risk tolerance, you as an investor need to realize that a portfolio of 50% stocks likely obtains approximately half the gain when the market advances, but suffers only half the loss when the market declines. "

FIREd April 2007. Set AA to 50/50. Crazy for age 48 with a pension in place and another coming in late 2014 ? Perhaps. When you're one deep (widowed, no spousal $ backup), a girl has to be careful. Very careful.

Along comes 4Q08. Overall portfolio unrealized loss approx 25%. A bit of a stomach lurch but at least it wasn't a 50% drop.

Along comes the rest of the story to 2015...that 25% loss went away very quickly. Whew !

Just an example in a short time span of 8 years. Still sticking to my 50/50 rule. What I may miss in market surges is compensated for by a good night's sleep.

 

[Chuckanut]

Yep, I think most of us agree with the concept of diversification.

I go further and have diversified my sources of income. I have three and hopefully I can live OK on just two if that ever happens.

Diversification - Don't Leave Work without It.