Diversification Matters

At Flat Fee Portfolios we believe that broad diversification not only matters, but is a prerequisite to any portfolio’s long-term success.  Dividing assets across various asset classes can help manage the overall volatility of a portfolio, as well as potentially increase expected returns.  Different asset classes have a variety of risk and return characteristics, as well as imperfect correlations with each another.   The investor benefits in the end because they do not all move in the same direction at once

The effect is illustrated in the example below.  As assets such as Small Cap, Value, International, and Emerging Markets stocks were added to increase the diversification, the overall risk in the portfolio stayed roughly the same, while the return experienced over the period increased from 9.47% for a portfolio invested solely in the S&P 500 to 11.65% for a portfolio that included more diverse equities.  

    Fully Diversified Portfolio

Favorable environments for some asset classes may be less favorable for others.  It is impossible to predict with any certainty which asset classes will be the best, or worst, performers in the future. Broad diversification helps investors avoid this folly. Investors who broadly diversify will never have all their eggs in the winning basket, but they’ll never have all of them in the losing basket either. 


investment diversification

Source: "Guide to the Markets, Q4 2011," J.P. Morgan Asset Management, www.jpmorganfunds.com

Regularly rebalancing a diversified portfolio back to the target allocation helps reduce risk by systematically selling assets that have appreciated, and may be overvalued, as well as purchasing assets that have underperformed, and may well be undervalued.  

 
Please read the following important disclosures:

Pricing for accounts under $1,000,000.  The fee for accounts over $1,000,000 is a flat 0.24%.  Call to discuss pricing for endowments, trusts, and institutional accounts.

Flat Fee Portfolios is a dba of MACRO Consulting Group, LLC.

Advisory Services are offered through MACRO Consulting Group, LLC, a registered investment adviser with the Securities and Exchange Commission.  MACRO Consulting Group, LLC only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements.

TD Ameritrade, Fidelity, Foliofn and LPL Financial are the firms that MACRO Consulting Group, LLC uses to custody our client assets.  TD Ameritrade, Fidelity, Foliofn and LPL Financial and MACRO Consulting Group are separate and unaffiliated firms and are not responsible for each other’s services or policies.  TD Ameritrade, Fidelity, Foliofn and LPL Financial do not endorse or recommend any advisor.

Please review Important Disclosure Information set forth in the last section of this web site. 

Information on this web site is directed toward U.S. residents only.

 

TD Ameritrade, Inc. is the firm that we use to custody our client assets. TD Ameritrade and MACRO Consulting Group are separate and unaffiliated firms, and are not responsible for each other’s services or policies. TD Ameritrade does not endorse or recommend any advisor and the use of the TD Ameritrade logo does not represent the endorsement or recommendation of any advisor. Brokerage services provided by TD Ameritrade Institutional, Division of TD Ameritrade, Inc., member FINRA/SIPC/NFA. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank. Used with permission.