Study Backs a Powerful Way to Manage Portfolio Risk

By Paula Aven Gladych

Diversification across asset classes significantly reduces dramatic declines, Manning & Napier study finds.
Diversification across multiple asset classes is one of the most effective risk management tools available to investors, according to Manning & Napier.

Investors can reduce the risk of declines in their portfolio by including multiple asset classes, like U.S. large cap stocks, small cap stocks, international stocks, short-term fixed income, intermediate-term bonds and long-term bonds.

Diversification risk-proofs your portfolio because when stocks are down, domestic bond prices may rise and international equities may not react at all.

“When a portfolio includes broad exposure to multiple asset classes, it is less exposed to extreme market fluctuations because declines in one asset class may not be experienced by other asset classes, and quite possibly may be offset by gains in another asset class,” the report stated.

“Clearly, broad diversification across multiple asset classes can significantly reduce the probability of an investor’s portfolio experiencing dramatic declines,” the report found.  “While it may be tempting to try to identify the single asset class that is expected to perform the best over the near term and invest solely in that asset class, history has proven that asset class returns are unstable over time and the best performing asset class can turn into the worst performing asset class very quickly.”

******

The views expressed here are that of myself or the cited individual or firm and do not constitute a recommendation, solicitation, or offer by myself, D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

 The Jacksonville Business Journal has ranked D2 Capital Management in the top 25 of Certified Financial Planners in Jacksonville.  The Firm is also a member of the Financial Planning Association of Northeast Florida, the Jacksonville Chamber of Commerce, the Southside Businessmen's Club, and the Beaches Business Association.