By Jay Sanford, Director, Investment Strategy
If you follow WFG on Twitter (@washfinancial), you know that some of us in the office are big soccer fans. The TV’s in the office MIGHT have been turned from CNBC to the World Cup over the last few weeks. Watching All-Star teams play for their country (imagine every country having a 1992 Dream Team type lineup for the World Cup) brings to mind the need for diversification and making sure all areas are taken care of when it comes to developing a team. England has four world class strikers (Kane, Vardy, Rashford, Sterling), yet they never play at the same time. Why? Because you should only have so many goal scorers on the field at the same time, while the rest of the team needs to fill out to provide support and defense (a quick aside, England may have riches at forward, but it will be their defense that fails them).
The same goes for portfolio construction as well. Imagine putting only the historically best performing large cap growth funds within a portfolio right now. Yes, your potential returns would look good. Yes, your portfolio likely would have a historical track record of producing double digit returns over the last few years, but is it diversified going forward? Would it provide the necessary “defense” a portfolio might need when markets are volatile or turn downward? Generally speaking, the answer would be “No”. Like any great World Cup team, a diversified portfolio must have balance. It must have investments that have great return potential when the markets are up (see: Lukaku from Belgium), but must also have investments that historically hold their ground when things turn volatile (see: Godin from Uruguay) or typically perform positively when things are negative (pick any one of the goalies who have stopped a penalty kick during this tournament. How about that Russian kick-save!?!?).
So, when you review your portfolio and wonder why everything isn’t going up, think of a World Cup team. Not every investment is a world class goal scorer. Portfolios need defenders and goalies too.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.
To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.
Investing in mutual funds involves risk, including possible loss of principal.
All investing involves risk including loss of principal. No strategy assures success or protects against loss.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
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