Dumbfounded by Diversification
One thing investors don’t often understand is that diversification doesn’t always look the same. How two assets perform relative to one another can look very different in good times versus bad times.
One thing investors don’t often understand is that diversification doesn’t always look the same. How two assets perform relative to one another can look very different in good times versus bad times.
Growing up, I didn’t know the difference between salad and lettuce. I’d always asked my dad to put salad on my sandwich. Luckily, dad knew what I meant.
All this to say, words have meaning, and they can often get lost in translation. There is a lot of vocabulary when it comes to finance, and there is a language of finance. You need to be careful not to misuse these financial terms in a fashion that would mislead your portfolio or financial plan.
It’s helpful to have an advisor. They can be your guide; they can be your translator. My dad was a great advisor; he didn’t pile a salad onto my sandwich. Our waiter just took our order and gave us what we asked for (nachos); he was not much of an advisor. You need an advisor, as these mistakes in the realm of personal finance can be costly.
Because maybe, just maybe, diversification doesn’t mean what you think it does.
Links mentioned in this episode:
Trevor is a Partner, Director of our Private Wealth Advisor Group, and Author of Thoughts on Money.
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