“Diversification strives to smooth out unsystematic risk events in a portfolio so the positive performance of some investments neutralizes the negative performance of others. Therefore, the benefits of diversification hold only if the securities in the portfolio are not perfectly correlated.” [1]
The quote above is a philosophy that we continue to discuss with all of our clients as it relates to their investment portfolio. Given the current market conditions and volatility resurfacing in 2018, it is important to “spread your risk,” “do not put all of your eggs in one basket,” and “diversify”. However, diversification may not guarantee the outcome of expected results from time to time as such is the case this year.
Investors in 2017 experienced for the most part, a very smooth, low volatile market and most asset classes were positive throughout the year. This 2018 year has been a much different story…
As investors, we are experiencing a myriad of topics from trade wars to the Fed increasing interest rates, to a U.S. dollar rising. It is true these topics mentioned above had an effect on international / emerging market investments, alternative investments, as well as fixed income investments relating to performance. We recognize that by being diversified, investors can spread risk but it also cannot protect you from negative performance which can be frustrating.
Given the current market environment, we do remain very optimistic for our clients’ long term goals. We view international and emerging markets as an opportunity for the long term at current valuations. We continue to stress the need for fixed income and alternative investments in a portfolio, despite their recent disappointing returns. We view fundamentals in the economy still strong as the unemployment rate is under 4%, consumer sentiment still remains high, and current interest rates are still low from historical measures.
As 2018 has been and continues to be volatile, we believe this environment can present long term opportunities and would welcome a discussion on how we can help you achieve your goals.
Investments and markets will go up and they will go down, but our continued message and belief for all of our clients at McCabe & Associates, Inc. is to maintain a diversified portfolio and to always have a long term view for achievement of goals as it relates to their investment portfolios.
[1]Source: https://www.investopedia.com/terms/d/diversification.asp
Securities offered through Cetera Advisor Networks LLC, Member FINRA/SIPC, a broker/dealer and Registered Investment Advisor. Cetera Advisor Networks LLC and McCabe are not affiliated companies.