A Diversified Approach

Ancient Chinese merchants developed a strategy to reduce risk through pooling cargo together and separating it amongst multiple ships. If one ship was taken down, the majority of their cargo would still be safe.

The same logic can be applied to investing.

Allocating capital to multiple different investments is an essential risk management strategy which is considered diversification. Depending on how investors are diversified, it’s arguably the most important principle within investment management. By choosing quality investments that perform differently under various market conditions, diversification allows for the ability to decrease the statistical probability of large swings in the portfolio’s overall value.

Investment portfolios should be diversified between asset classes such as stocks, bonds, and cash and should be diversified within asset classes such as small-cap stocks, mid-cap stocks, large-cap stocks, treasury bonds, corporate bonds, bonds with low duration, bonds with high duration, real estate, commodities etc….

Asset allocation and diversification do not assure or guarantee better performance and cannot eliminate the risk of investment loss.  As with any investment strategy, there is the possibility of profit as well as loss.

Advisory services offered through Deer Creek Capital, a Member of Advisory Services Network, LLC