Make sure your portfolio’s design is truly “modern,” because the stock market is a completely different world than it was in the ’50s, when the theory of diversification (which many advisers still follow) was developed.
Most investment professionals will tell you that, although it doesn’t guarantee against loss, diversification is a critical part of reaching your long-range financial goals.
What they all might not agree on, though, is what diversification really means.
The people who come to our office for help think they’re diversified. After all, they have stocks and bonds and mutual funds in their portfolios. They have large caps and small caps, and maybe even something invested in emerging markets or a variable annuity.
In my view, though, that isn’t diversification. Those investments are still all directly correlated to the market.
Think about it: In 2000 and 2008, it didn’t matter what mix you had, if your investments were tied to the market, you lost money. A lot of money.