Broker Check
I'm Not Sorry for Your Diversified Portfolio.

I'm Not Sorry for Your Diversified Portfolio.

March 30, 2021

Transcript: Here’s why I am not saying sorry for your diversified portfolio. 

One could argue that asset class investing in a diversified portfolio means that the advisor always needs to apologize at some point. Why? Because separate asset classes have their ups and downs and inevitably, there is always an asset class or two that’s down in a diversified portfolio. 

I can tell you that clients pay more attention to the parts of their portfolio that may be down compared to the ones that are up. I’m pretty sure that’s how we are designed to think. Ever check reviews of a product on amazon? I have. There may be 500 positive reviews and 3 negative ones. Guess which ones I look at first? If you guessed negative, you’re right. I’m not sure why that is, but it is. I very rarely get a phone call when things are going great but there is always a few calls when they aren’t. 

If you’re my client, you know that we build portfolios with a tilt towards funds that contain value stocks. Those are the unloved stocks that have been beaten up and underperforming compared to growth stocks for pretty much the last 10 years. 

So, here’s why I am not apologizing for that value tilt we use in your portfolios even though it has underperformed over the past decade. Guess what happened in late 2020? I’ll give you a second to think about it. 

If you guessed that value stocks took off and started outperforming growth stocks, then you are correct. 

Because I have been in this business for many years, I know that these trends are cyclical and they can potentially last for several years. 

You see, there is no crystal ball. You never know when these changes are going to happen but I don’t want to be on the sidelines and miss out when they do happen. I know that over time, value has outperformed growth but it’s definitely not every year. It’s over time and that might require some patience on your part. 

One last thing in regards to diversified portfolios. The other pushback I sometimes hear from clients is about the non equity side of their portfolio. Let me rephrase that, a client may have a 65/35 portfolio which means that 65% of their portfolio is invested in the market while the other 35% is invested in bonds and other fixed instruments. 

Clients will look at the return on that 35% of their portfolio and see only a small return causing them to ask why we are we still holding that in their portfolio, especially given the current interest rate environment we are in. My answer is this, “Mr. or Mrs. so and so, the reason for this fixed income portion of your portfolio is not to make you rich. It’s to add stability while making sure we never have to liquidate any of the 65% equity portion of your portfolio in a market downturn. The reason for the bonds is so we don’t have to sell your stocks.”


I’m not sorry. We build portfolios based on acedemic and evidenced based research, not  speculation. 

Alright, that’s it for this one. Thanks for watching and click the contact us button if you would like to start building your personalized portfolio and plan. 

Ycharts Source