Monday, February 17, 2014

Benefits and Drawbacks of Diversification

By Campbell Wealth Management

As the charts from JP Morgan below demonstrate, adding non-correlated assets to a portfolio can lower volatility/risk.  Additionally, in many cases having a more diversified portfolio not only lowers risk, but it can also provide a better return.

The idea is to have assets that zig when other assets zag.

Of course, if one has an appetite for risk and wants to “swing for the fences”, it is best to have a concentrated portfolio of a few securities.  The problem of course is selecting the right securities.

Older investors typically need to take less risk, as there is less time to make up for any losses that may occur in their portfolio.  Younger investors have plenty of time, and should therefore position their portfolios accordingly.

There are many other investable assets other than stocks and bonds.  Examples include commodities, real estate, master limited partnerships and private equity.  Historically, these assets have not correlated 100% with the stock or bond markets, but have still provided a return.

Campbell Wealth Management



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