On Today’s DueNorth Insight we’re going to talk about Diversification. What does that really mean? What does it mean to be diversified? You might have heard the phrase, “Don’t put all your eggs in one basket.” And I think we know why, because if you’re walk along with all the eggs in one basket, you trip and fall, you’re going to have a whole bunch of splattered eggs. And that same concept can be taken to investments.
The reason we don’t put all of our eggs in one basket is because we want to make sure we can reduce some volatility over the long-term.
Diversification is important, because we want to make sure that our investments are reaching our goals. And investments all act differently, a large cap growth stock is going to be much different than a bond. Or an emerging markets stock is much different than a US Large Cap stock. And they all have different reasons to be in a portfolio, and some of those reasons are going to be related to the time horizon of our investments. Are we looking for something shorter? Like sending our kids to college in a couple of years and we want to make sure we preserve that principal. Or are we saving for something more long term, like retirement? In which case we need to make sure that we’re growing our portfolio at a rate that can sustain the withdrawals that we’re going to need in retirement.
All of these are important factors to consider, especially because our performance can vary. Over time, not all investments do the same thing. And adding that diversification can help weather the risk of investing in general. And that’s what we need to make sure, why we are diversified. And that’s today’s DueNorth Insight.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.