Hi ,

 

The S&P 500 is up 39.25% for the previous 52 weeks and up 22.72% since January 1, 2021. You might be thinking - why diversify? 

 

During times of unusually high US stock market returns, many investors pile into the winning sector and think that they've found the winning investment strategy. And, some investment managers and funds promise to  manage your money and find the winning market sectors in advance.

 

I've been investing since the early 1980's and remember October's 1987 Black Monday, when the stock market dropped 22% in one day, the dot com bubble bursting in 2000 for a two year tech-heavy Nasdaq market decline of 70% by October 2002, and the 2007-2008 sub prime mortgage crises when the market dropped by nearly 20% by September 2007.

 

Fortunately, there's a solution to cushion your hard earned money, invested in the markets, from a total meltdown when the next market drop occurs, and it will.

 

This magic bullet, that will save your portfolio from the depths during the next market crash is called diversification. Check out this chart of several asset classes' annual returns from 2000 to 2010.

 

Notice that US large cap stocks were never in the top third.

 

There were several years when bonds and REITs were among the top performers.

 

During four years, emerging markets stocks were the best performers.  

 

I hope this chart will serve as a reminder of the benefits or diversification. With a broadly diversified portfolio, you won't match returns of the highest performing asset class, but you also won't suffer the dramatic losses of the worst performers.

 

For more reading, watching and listening about the benefits of portfolio diversification check these out:

 

Best Robo-Advisors - I like robo-advisors because they create the diversified portfolios for you, with low or no fees. 

 

Investment Diversification Strategy | How to Figure Out My Risk Tolerance - A quick risk quiz and sample diversified investment portfolios for self directed investors. 

 

Paul Merriman 4 Fund Portfolio | Lazy Portfolio With Higher Returns - I interview Paul Merriman, investing legend on YouTube about a diversified investment portfolio which just might beat the market.

 

Benefits of Global Diversification with Sean Duffin, Cambridge Associates – The Meb Faber Podcast has a great conversation about the importance of diversification.

 

Don't get swayed by the recent exceptional market returns, as they will come down to reality at some point.