What is the Diversification Obstacle?

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On The Retire Road we face many challenges and obstacles, but one way to avoid those is through Diversification. Diversifying your portfolios is an important way to manage your accounts.
Transcript:

Hi, this is Phil Calandra with Calandra Financial. Today I’d like to talk about diversification. In working with clients for nearly 20 years this is one of the obstacles we routinely see and it can be eliminated in one sentence. Broad diversification among different sectors and styles implies one critically important truth. We will never own enough of one idea to make a killing in it and we will never own enough of any one idea to get killed by it.

All we’re trying to do by diversifying is to suppress to some extent the short term to intermediate term volatility of the overall portfolio.

This is because the different components will be running on different cycles while still earning the full returns of all the components in the long run. In efficient markets anything we do to mute the volatility in the shorter term is also going to suppress shorter term return we need to keep an eye on the prize, which is the full return of all the portfolio components over the long term.

In an intelligently diversified portfolio some component or components will always be underperforming. That is how we know we are really diversified. The last thing on earth we’d ever want to do is to sell the component that’s already down to chase the one that’s already up the most. That would turn the portfolio into a bet on one trend. That is not investing at all. It’s speculation once a year or so when we rebalance your portfolio to return it to its original quotas.

We will actually harvest some of the gains in components that have gotten relatively expensive and reinvest them in whatever has gotten relatively cheap. That’s the exact opposite of what
most people do, which is yet another reason why I believe our clients are going to get a much better lifetime outcome than do most people.

Remember, obstacles are financial barriers and mistakes you have control over. It’s yet another reason why we follow our proven retire road signature solution process.

Thanks for tuning in to today’s video.

I’m Phil Calandra and you’ve been on the retire road.

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As an independent wealth management firm, we represent only the interests of our clients — not those of a corporation or bank. We are committed to guiding those we serve towards and through their retirement years in the smoothest, most comfortable way possible. Investment Advisory Services offered through Calandra Wealth Management, LLC a Georgia Investment Advisor.

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