Don't put all your eggs in one basket!


There are many WAYS to diversify. First let's understand diversification.

Diversification in investments is when you spread your assets out into different types of investments.

You can have physical assets like a home, land, vehicle, collectibles, art, jewelry, intellectual property, etc. You can also have investments, bank accounts and cash value life insurance.

When you diversify you may reduce your growth opportunity from time to time, but you aim to reduce risks at the same time. You make the roller coaster not as steep when you add more investments to the mix.

No two investments ever perform the same way so I believe it is wise to diversify your assets between physical assets and investments. Additionally, you can diversify based on tax treatment of assets and sources of income (I'm a big fan of having multiple streams of income).

Returns are Random

The chart below illustrates that there is no pattern to the performance of the various asset classes in the stock market. The best performing asset class one year could easily be the worst performing asset class the following year, which helps build the case for diversification across the various asset classes. Have money in all asset classes not just the best performer that year.

Rather than looking at your retirement statement and moving money based on the performance the previous quarter, seek to build a diversified portfolio so that you're invested in all asset classes at all times. Chasing returns based on old data is like trying to drive by looking in the rear view mirror.

2019 Callan Chart.pdf


Morningstar evaluates and gives us well researched data pertaining to investments. When you meet with a financial advisor or CFP® the advisor will likely do analysis on your portfolio using a Morningstar report or the advisor may use a Morningstar report as basis for making a particular recommendation.

Value Growth Blend

Take a look at the image above. It's a Morningstar sytle box. Notice that is is a grid with three columns. From left to right you'll see |Value|Blend|Growth|.

The style box shows you the percentage of your investments that are in each of those boxes. Too much in one or a couple of boxes means you aren't diversified enough. Little to no allocation in a box or two means you are "underweight" and could potentially benefit from having some of your portfolio in those asset classes that are missing. This doesn't guarantee gains, nor does it guarantee against losses.

Value stocks, and the stocks in value mutual funds, are stocks that appear to be undervalued. Think of those stocks as being on sale. Value stocks also tend to pay dividends, which means that in addition to the price per share growing over time, you as the investor get paid a dividend. You can either reinvest the dividends, let them sit in cash inside your investment account or take them out of the account to spend while leaving your shares in tact. Keep in mind you wouldn't want to take the dividends out if you're under 59 1/2 and investing for retirement in a retirement account. However, many retirees will use this strategy as part of their overall income strategy. They stay invested while living on the income from their investments.

Value stocks are considered to be more stable than growth stocks. The trade of for more stability (less volatility) is lower returns (less growth) than growth stocks.

Growth stocks and the stocks in growth stock mutual funds are stocks that have growth potential. When you invest in a growth stock or growth stock mutual fund you're anticipating that the price per share will increase over time and at a faster rate than value stocks. Growth stocks tend to pay no dividend. Instead, growth stock companies reinvest in themselves so they can find ways to grow profits and pass along the growth to shareholders (investors).

Growth stocks can be more volatile than value or blend funds so make sure you're investing with a longer time frame in mind. Growth stock funds are not for investors who are unprepared to ride out a volatile market.

Blend. When you have a blended mutual fund in your portfolio, you own both value and growth stocks.

Depending on how much money you're starting out with, you may want to invest in both a value and a growth fund or keep it simple and stick with a blended fund. Seek the advice of a licensed professional financial planner or financial advisor before making your investing decisions.

There are no guarantees when you invest in stocks and bonds. The same goes for stock and bond mutual funds. There's no guarantee that you'll make money and there's no guarantee that you won't lose money. However, over time these investments tend to go up in value, but on a daily basis they will go up AND down in value. That is the ONE guarantee!

Looking at a Morningstar Report

Even a simple Morningstar report will have an overabundance of information for the novice investor. Ask your advisor to help you understand what it is you are looking at and how it applies to your situation and goals.

Complete and Continue