Diversification Isn’t Undefeated But It Never Gets Blown Out

Diversification Isn’t Undefeated But It Never Gets Blown Out

Click the link above to read the full article.

One of our favourite follows is author Ben Carlson, (A Wealth of Common Sense blog) has shared another great article.

Diversification has been preached for long enough. What is great about the article is the updated data and numbers it contains. Looking at different sectors and stock returns, the article reinforces the power of diversification to protect portfolio's during downturns.

If you’re invested in one specific group listed here, you’re either doing not so bad or you’re losing your shirt. But what if you have your investments spread across all or many of these assets? Yes, you’re experiencing some pain in certain parts of your portfolio but there are other pieces that are picking up the slack.

By diversifying you avoid having a single point of failure in your portfolio.

Of course, being diversified means you’re never going to be invested exclusively in the best-performing names either. You don’t win games by blow-out margins practicing diversification. And sometimes you may even lose for a time.

As we say in our industry, "past performance does not predict future performance". When we talk about diversification, the chart below is the king. Novel Investor has a great interactive version. We use the S&P 500 as it is a great proxy and benchmark for the global markets. The point the chart makes is that there is no sector (color) that is always at the top or bottom, different sectors have great years and not so great years. Diversification can smooth out your returns and offer your portfolio protection from larger drops.

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The article linked and mentioned above was published February 4, 2022 and written by Ben Carlson. You can follow his blog at A Wealth of Common Sense.

The S&P 500 Sector Performance graph pictured above can be found at Novel Investor.

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