I have been in financial services since the late 1990s. A lot has changed during that time. The internet is no longer America Online. Technology has changed the way the world shares information. This information is available to everyone, all the time, anywhere from your cell phone that you probably use more for things other than making a phone call. A rumor in Asia can be heard worldwide. Stock market volatility has never been greater. No one knows what is going to happen in the future, no matter what you hear.
When I first started, diversification was allocating a portfolio across asset classes, i.e. large cap stocks, small cap stocks, international stocks, and bonds based on risk tolerance and time horizon. The portfolio would be diversified by asset class, but not by strategy. Sometimes this strategy works out better than others, sometimes worse. I cannot predict the future. But I can learn from the past. I view my job as helping my clients pursue their goals and dreams with as much certainty as possible. Most of my clients are more concerned about living the life they want to live, not what is going on in the stock market.
This is why I believe in diversifying by strategy and creating multiple buckets in portfolio. By having multiple strategies in a portfolio if there is a problem with one, there can be others that can complement it. I still believe in a “Buy and Hold” strategy for a portfolio, but for only part of it. Adding in tactical management, one that plays offense and defense, can help during volatile periods. Market Alternatives can also add in another component which may have correlation to stocks and bonds.
If there is one thing that is constant, it is change. Having a portfolio that evolves over time makes sense in an ever changing environment. Only weeks ago we didn’t know what Pokemon go was. What’s next?
Disclaimer:
Investing involves risk including loss of principal.
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.
Alternative investments may not be suitable for all investors and should be considered as an investment for the risk capital portion of the investor’s portfolio. The strategies employed in the management of alternative investments may accelerate the velocity of potential losses.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual