Diversification: Your Long-Lost Friend
By Andrea Young on January 12, 2023
By Bruce Thompson, Glenn Frank, Betsy Lavoie, Kerry Luria, and Jon Marcus
January 2023
Highlights:
Looking Backward & Forward
• 2022 Index Return Summary
• Updates to Lexington’s 10-year Return Assumptions
Focus on International Stocks
Throughout this year’s trying market conditions, our commitment to ensuring you reach your long-term financial goals has never wavered. We are as grateful as ever for the trust you’ve placed in us, and we wish you a Happy New Year, Bonne Année, Feliz Año Nuevo, Frohes Neues Jahr, and as they say in Ukraine, Shchaslyvoho Novoho Roku!
Investment diversification comes in many languages and forms too:
- By Asset Class (stocks vs. bonds vs. alternatives)
- By Geography (domestic vs. foreign)
- By Company (more stocks vs. fewer)
- By Market Capitalization (large companies vs. small)
- By Style Factors (value vs. growth vs. quality vs. momentum, etc.)
- By Bond Maturity (short vs. intermediate vs. long)
- By Credit Quality (lower vs. higher rated)
- By Liquidity (public vs. private markets)
- By Tax Bucket (taxable vs. tax-deferred vs. tax-exempt)
These are all ways clients can increase the investment opportunity set while spreading and hedging risks. Diversification can be incredibly powerful, but it is often misunderstood and also likely to create regret in the short run, as summed up by these quotes:
“Diversification means always having to say you’re sorry.” — Brian Portnoy
“The bottom line is that since diversification is the only free lunch in investing, you might as well eat a lot of it.” — Larry Swedroe
“Familiarity bias drags you to the safety of your comfort zone and, in doing so, unwittingly increases your risks by limiting diversification and investment opportunities.” ― Coreen T. Sol
Like strong medicine, real diversification might not always taste good in the moment because it requires investing in assets that can perform differently from one another. By definition, some asset classes will lag and some will lead at any given time. In many periods, we regret every dollar we put into diversifiers. In others, we regret every dollar we didn’t put into diversifiers.
To download the full quarterly market letter PDF, click below.
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Lexington Wealth Management is a group comprised of investment professionals registered with Hightower Advisors, LLC, an SEC registered investment adviser. Some investment professionals may also be registered with Hightower Securities, LLC (member FINRA and SIPC). Advisory services are offered through Hightower Advisors, LLC. Securities are offered through Hightower Securities, LLC.
This is not an offer to buy or sell securities, nor should anything contained herein be construed as a recommendation or advice of any kind. Consult with an appropriately credentialed professional before making any financial, investment, tax or legal decision. No investment process is free of risk, and there is no guarantee that any investment process or investment opportunities will be profitable or suitable for all investors. Past performance is neither indicative nor a guarantee of future results. You cannot invest directly in an index.
These materials were created for informational purposes only; the opinions and positions stated are those of the author(s) and are not necessarily the official opinion or position of Hightower Advisors, LLC or its affiliates (“Hightower”). Any examples used are for illustrative purposes only and based on generic assumptions. All data or other information referenced is from sources believed to be reliable but not independently verified. Information provided is as of the date referenced and is subject to change without notice. Hightower assumes no liability for any action made or taken in reliance on or relating in any way to this information. Hightower makes no representations or warranties, express or implied, as to the accuracy or completeness of the information, for statements or errors or omissions, or results obtained from the use of this information. References to any person, organization, or the inclusion of external hyperlinks does not constitute endorsement (or guarantee of accuracy or safety) by Hightower of any such person, organization or linked website or the information, products or services contained therein.
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