Is Diversification Dead? - Prentice Financial Planning, LLC

With recent wide performance differences between stocks (16.07%) vs. bonds (-4.00%), US (16.07%) vs. Non-US (-1.61%) stocks, and Information technology sector (30.21%) vs. Consumer staples sector (-1.4%) is diversification dead? Should we no longer spread our portfolio out among different asset classes, geographic regions or sectors? If you use history and probability to build a long term portfolio the answer is a resounding NO. The beauty of a truly diversified portfolio is that your portfolio will never be the worst performer and over time typically have a better risk adjusted return (which means you will get more return per unit of risk that you take). Diversifying seems pointless when we are fixated on the US stock markets performance over the last 9 years but you don’t have to look back too far to remember the benefits during the 2008 financial crisis or 2000 tech bubble. The enclosed chart shows the unpredictability of returns between different asset classes over time, but how a diversified portfolio can smooth out the roller coaster ride.

During times like these it is very hard for us to remember to stick to the process and it can become easy to look for simple solutions to fix what is a normal part of the ebb and flow of investing. We should always focus our attention on things that we can control: 1. Investing for the long-term 2. Building a global and diversified portfolio 3. Reducing internal and trade costs 4. Reducing taxes. By focusing on these 4 tenets of investing and letting the process work, you will set yourself up for a successful long-term plan.

Performance numbers were for a rolling period as of 9/12/2018. Used the following funds to use as performance substitutes for the benchmarks: IVV for stocks, AGG for Bonds, IVV for US and SPDW for Non-US.

Certified Financial Planner Board of Standards, Inc. (CFP Board) owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER, and CFP® (with plaque design) in the United States, which it authorizes use of by individuals who successfully complete CFP Board’s initial and ongoing certification requirements.

There are no warranties implied.

Prentice Financial Planning, LLC (“RIA Firm”) is a registered investment adviser located in Olympia, WA. Prentice Financial Planning, LLC may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements. Prentice Financial Planning, LLC’s web site is limited to the dissemination of general information pertaining to its advisory services, together with access to additional investment-related information, publications, and links. Accordingly, the publication of Prentice Financial Planning, LLC’s web site on the Internet should not be construed by any consumer and/or prospective client as Prentice Financial Planning, LLC’s solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment advice for compensation, over the Internet. Any subsequent, direct communication by Prentice Financial Planning, LLC with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. For information pertaining to the registration status of Prentice Financial Planning, LLC, please contact the state securities regulators for those states in which Prentice Financial Planning, LLC maintains a registration filing. A copy of Prentice Financial Planning, LLC’s current written disclosure statement discussing RIA Firm Name’s business operations, services, and fees is available at the SEC’s investment adviser public information website – www.adviserinfo.sec.gov or from Prentice Financial Planning, LLC upon written request. Prentice Financial Planning, LLC does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Prentice Financial Planning, LLC’s web site or incorporated herein, and takes no responsibility therefor. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.

This website and information are provided for guidance and information purposes only. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy. This website and information are not intended to provide investment, tax, or legal advice.