By Antonio Porretta
We’ve all heard the expression “Don’t put all your eggs in one basket.” And if you’ve ever dipped your toe into the investment world, this is likely one of the first concepts you learned about: diversification. In fact, it’s one of the golden rules of investing. But why? It all comes down to managing risk.
Diversifying your investments is a way of spreading the risk around so you are not locked into a few stocks that could make or break you. It’s increasing your odds against one asset tanking. It seeks to decrease your portfolio’s volatility because the stock market is inherently volatile and unpredictable, and diversifying can help mitigate those risks.
Asset Class Diversification
But diversification isn’t just holding different sectors and market capitalization stocks. It also means having other asset classes such as fixed income. In general, stocks tend to perform better in strong economies, while bonds can survive bear markets better.
While we may all want to jump on the latest shiny, new tech stock because it has excellent press and it’s skyrocketing, putting too much of your savings (especially retirement savings) into one holding is a recipe for disaster. Remember that today’s raging stocks may be tomorrow’s old news. That’s not to say you shouldn’t invest in hot stocks; it just means it shouldn’t be the center of your strategy.
At Blackbridge Financial, we believe in diversifying across asset classes and within asset classes. For example, we diversify by market capitalization (small, mid, and large-cap) and across market sectors. We diversify across short, intermediate, and long-term bonds, treasuries, corporates, and municipal bonds.
Diversification is significant when you look at your portfolio as a whole, if managed by several advisors, or, in the case of retirement, in several different plans. You could be duplicating your efforts and you might be over- or underweight in an asset class or sector. If your retirement portfolio is invested in mutual funds, it could be that you are repeating the same holdings with similar funds.
Holistic Portfolio View
If you have several retirement plans and IRAs, we would be happy to analyze your holdings to determine the allocation as a whole. If you are a DIYer, we’d also be glad to look at your portfolio. How many holdings does it have, and how much did you pay in commissions to build it…we can create a strategy to help you manage it.
Diversification isn’t a one-time thing. You don’t set it and forget it. Your portfolio needs to be rebalanced when there is a change in your goals or a significant life event. If you just got married or divorced, are nearing retirement, or have changed course on your goals, it’s a great time to look at your diversification and rebalance if necessary.
We’re Here For You
There are many ways to diversify in a matter of minutes; there are ETFs and mutual funds for every asset and sector imaginable, and one for practically every country in the world. Just because diversifying is easy doesn’t mean it’s not complicated. Rather than muddling through the information and your options on your own, consider partnering with a financial professional.
We at Blackbridge Financial are here to discuss diversification or any other topic related to your investments or financial plan. Our mission is to help you develop a holistic plan designed to connect you with your future. We invite you to schedule an introductory meeting by emailing me at firstname.lastname@example.org or calling 704.960.9646.
Antonio Porretta is an independent wealth manager at Blackbridge Financial with over 20 years of experience. He specializes in helping people create, distribute, and preserve their wealth. Antonio received an executive MBA from Saunders College of Business at Rochester Institute of Technology in 2007 and also holds the Accredited Asset Management Specialist (AAMS®) designation. Originally from Rochester, NY, Antonio has been a resident of Harrisburg, NC, since 2007. Outside of work, he enjoys playing soccer and tennis, coaching, and spending time with his wife, Laura, and their children, Cristiano, Victoria, and Matteo. To learn more about Antonio and how he can make a difference in your financial life, visit www.blackbridgefinancial.com.
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Securities offered through LPL Financial. Member FINRA/SIPC. Investment advice offered through Independent Advisor Alliance, a registered investment advisor. Independent Advisor Alliance and Blackbridge Financial are separate entities from LPL Financial.
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 and allocation do not protect against market risk.