A well-diversified portfolio is one of the keys to successful investing

My wife attended and received her MBA from a well-known and respected business school in upstate New York. During a lecture her finance professor advised the class of a study conducted where the returns of a group of stocks picked by a monkey shooting darts at a board to compile a portfolio was compared to several certified financial advisors’ stock portfolios over a number of years. Surprisingly, the portfolio randomly chosen by the monkey performed as well as the portfolios chosen by the educated professionals. The validity of the story is not the point. What the professor was conveying to his students, in part, is a well-diversified portfolio is one of the keys to successful investing.

Diversifying within and among investment categories can be equally as important. According to the U.S. Securities and Exchange Commission, “By including asset categories with investment returns that move up and down under different market conditions within a portfolio, an investor can protect against significant losses. Historically, the returns of the three major asset categories have not moved up and down at the same time. Market conditions that cause one asset category to do well often cause another asset category to have average or poor returns. By investing in more than one asset category, you’ll reduce the risk that you’ll lose money and your portfolio’s overall investment returns will have a smoother ride. If one asset category’s investment return falls, you’ll be in a position to counteract your losses in that asset category with better investment returns in another asset category.

One reason our clients own precious metals is that it can smooth out the volatility of their investment portfolios. A recent article published on Marketwatch.com emphasized this point stating, in part, “…the biggest reason to own gold is that it smooths out the volatility in your investment portfolio. Add a little bit of gold, and you’ll pretty much get the same overall returns. But you’ll cut your volatility in half. This is why I encourage my readers to allocate 20% of their investment portfolios to gold. It’s not about conspiracy theories or other nutty stuff. It’s about better risk-adjusted returns. And that is something to get excited about.” You can read the entire article here https://www.marketwatch.com/story/gold-as-an-investment-is-made-for-times-like-these-2020-05-05


SEC Office of Investor Education and Assistance (2011, March). Beginners’ Guide to Asset Allocation, Diversification, and Rebalancing. Retrieved from: https://www.investor.gov/additional-resources/general-resources/publications-research/info-sheets/beginners-guide-asset

Dillon, J (2020 May, 5) Gold as an investment is made for times like these. Retrieved fromhttps://www.marketwatch.com/story/gold-as-an-investment-is-made-for-times-like-these-2020-05-05