The importance of diversification Diversifying your assets among a variety of investment styles helps ensure that your portfolio’s overall return is not limited to the performance of just one type of security. Of course, markets are unpredictable, and diversification does not assure a profit or guarantee against market loss. When it comes to market declines, having a diversified portfolio is especially critical. For instance, if an investment falls 25% in one year, it takes a 33% gain in the following year just to break even. By investing in a variety of market sectors and styles, a loss in one area may be recouped by a gain in another. To demonstrate this point, the chart below helps illustrate how three types of hypothetical investors fared using different investment approaches.
Hypothetical results over a 30-year period (1/1/92-12/31/21) The importance of a disciplined approach 4
The Contrarian
The Follower
Invested $10,000 in a diversified portfolio, consisting of equal parts of six asset classes, and rebalancing every quarter back to the original asset allocation mix. The Diversifier
Invested $10,000 in the worst-performing market segment from the previous year.
Invested $10,000 in the best-performing market segment from the previous year.
$1600k
On 1/1/92, each person invested $10,000, and during the next 30 years, continued to make annual investments of $10,000.
1400k
The Diversi fi er $1,571,174 The Follower $1,236,425 The Contrarian $1,227,495
1200k
1000k
800k
600k
400k
200k
0
12/31/17 12/31/19 12/31/21 12/31/15 12/31/13 12/31/11 12/31/09 12/31/07 12/31/05 12/31/03 12/31/01 12/31/99 12/31/93 12/31/95 12/31/97 1/1/92
Maintaining a diversified portfolio and utilizing a systematic investment plan, such as the one used in this illustration, do not ensure a profit or guarantee against a loss in a declining market. Investors should consider their financial ability to continue to invest through periods of low prices. Hypothetical results are for illustrative purposes only and are not intended to represent the future performance of any specific investment.
4. Source: Morningstar, 12/31/21. For “The Diversifier” illustration, six unmanaged indices were used with equal weighting: Russell 1000 ® Growth Index, Russell 1000 ® Value Index, Russell 2500 ® Growth Index, Russell 2500 ® Value Index, Bloomberg U.S. Aggregate Bond Index, and the MSCI EAFE Index. Results assume the reinvest- ment of all capital gain and dividend distributions. Past performance is no guarantee of future results, which will vary. An investment cannot be made directly into an index. The index performance is not representative of any investment or portfolio. Index definitions can be found at the end of this brochure.
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