Achieving True Diversification

Achieving True Diversification

It’s that time of year again. Banks, asset managers, and financial advisors have released their 2021 market outlooks en masse. Some of these outlooks are quite bullish. With a vaccine on the way, many
investors are looking to “play the reopening.” Others are more tempered in their optimism, encouraging investors to keep the events of 2020 in mind and to continue to focus on downside protection. A few of these outlooks lean bearish, suggesting that. we may be in a bubble that is about to burst. So, what can we make of the wide variety of predictions about what the market will do in 2021?

While these outlooks often provide interesting, well-researched insights and predictions, most long-term investors know that markets can be painfully unpredictable. We can dive into economic and market data, forecast the spread of COVID-19, and analyze investor sentiment ad nauseam. However, with geopolitical uncertainties, rapidly evolving technology, and the ever-present possibility of black swan events, the only surefire way to optimize one’s portfolio is through one of the most foundational, dependable principles of investment management – diversification.

We believe that many investors, even those who consider themselves to be conservative, have too much market exposure. Over the past decade, some of these investors have benefitted from the prolonged bull market and enjoyed impressive gains. However, this market exposure is no “free ride” up.

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