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Diversification

When most people think of the stock market, what they’re thinking about is the S&P 500 index which is weighted towards larger companies.  While it does provide a good snapshot of the US economy, to say that just investing in the S&P is all you should consider is shortsighted.  With the uncertainty added by the US and China flirting with a trade war, it’s useful to look at investments with broader scopes than the S&P can provide.  Let’s quickly go over some reasons why broad diversification is helpful, especially for those who want long term investment options.

  1. Broad diversification reduces the risk that one company or one sector’s performance can greatly impact your wealth.  

  2. Many people know that timing the market is a futile effort, and that this years hot tickets may be ranked near the bottom next year.  By investing in a broad spectrum of companies, it takes much of the guesswork out of the investment.

  3. Maintaining a broadly diversified portfolio over many asset classes, sectors, and countries smooths out the bumps and provides for a more stable outcome.  For those who feel stress when they see the market dip, this is especially helpful.

  4. By diversifying globally, you can capture returns on your investment wherever they may occur.  Just as you can never tell which companies will rise to the top in any given year, the same holds true for global markets.  With this strategy, you’ll be prepared to capitalize on global returns.

For those who are curious about this strategy and have questions or want to know more about if this makes sense for their situation, contact me and we can go through it together.

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