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Diversification May Be a Valid Investment Approach in 2015

Diversification is a technique that may reduce risk by distributing your investments among various financial categories instead of putting your money all in one location. Diversification may be a valid investment approach in 2015, and may be one of the most important methodologies to reach your long-term financial goals.

The chief investment officer for LPL Financial, Burt White, recently wrote about the timely topic of diversification in his latest client letter.

He discusses the recent outperformance of the most well-known U.S. index – the S&P 500, an index of the 500 largest U.S. public companies.

“This is exactly what happened in 2014 – the S&P 500 significantly outperformed many other often diversifying asset classes, including small cap stocks by nearly 9% and foreign developed stocks by approximately 18%.Therefore, a diversified portfolio last year would have significantly lagged the S&P 500.”

Burt also writes,

“So why not just invest in large cap stocks or the S&P 500? Over the past 20 years, the S&P 500 has only outperformed all other major asset classes (including small, mid, foreign developed and emerging markets) 30% of the time, and it was the worst performing asset class 25% of the time.”

After six straight years of positive U.S. equity returns, the importance of remaining focused on the benefits of diversification and risk management should not be overlooked. In a recent webcast hosted by DoubleLine Capital, Jeffrey Gundlach highlighted that the U.S. equity market has never risen 7 years in a row. This is an interesting statistic going back to 1874. Facts like this are not predictive of the future, but it is important to be aware of and put the timeframe of the current stock market rise into historical perspective.

It is impossible to predict what the U.S. stock market will return in 2015, but I believe that it is very important to remain focused on your investment strategy and remember that markets do not simply go in one direction. Eventually, we will have a more difficult investment environment and you should be prepared for the uncertainty ahead.

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. All indices are unmanaged and may not be invested into directly. 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. Investing involves risk including loss of principal. No strategy assures success or protects against loss.

About Josh Zorger

Joshua D. Zorger is the founder of Fortitude Private Wealth and has more than 10 years of experience in the wealth management industry. In addition to holding the FINRA Series 7 and 66 securities registrations through LPL Financial, Joshua is a CERTIFIED FINANCIAL PLANNER™ practitioner.

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LPL Financial Certified Financial Planner Fortitude Private Wealth
600 E Carmel Drive, Ste #159
Carmel, IN 46032
Phone: 317-819-8550

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*No strategy assures success or protects against loss. Investing involves risk including loss of principal.