Whether you are in the investment industry or not, one of the first lessons everyone learns is the importance of diversification. \u201cDon\u2019t put all your eggs in one basket,\u201d so to speak. Over time we have learned that diversification works. Stocks that are not alike will not perform alike, so oftentimes when one set of similar stocks is doing poorly, diversified stocks are doing better and vice versa. This way, your entire investment portfolio is not doing poorly all at once.<\/p>\n
There have been many times during market history when investors began to seek concentrated investments rather than stay diversified. The \u201ctech bubble\u201d is a prime example of this behavior. Investors started putting large amounts of money into any and all technology stocks without regard to their underlying value. After all, technology was changing the world. Technology certainly has changed the world. However, the stock prices of many early technology stocks did not fare as well as their businesses, or they simply did not survive.<\/p>\n
When looking at the entire investment market there are two primary ways to diversify U.S. stocks: <\/strong><\/p>\n 1. Invest in bonds, and <\/strong><\/p>\n 2. Invest in international stocks.<\/strong><\/p>\n Bonds provide insulation against sharp drops in the stock market. Typically, when stocks do poorly, investors flock to income-oriented bonds that are more protected from economic declines. International stocks are oftentimes diversified from U.S. stocks due to their varying economic conditions. Although our world has become much more global, different economies still have different growth cycles.<\/p>\n If your portfolio is diversified, you may be looking at your performance for 2018 and wondering why your investments are not living up to performance that is displayed across the news. U.S. news typically reports three different indices: S&P 500 Index, Dow Jones Industrial Average Index and NASDAQ Index. Just because three different indices are reported, it does not mean they are diversified. All three of these indices hold all U.S. stocks. And, most are dominated by high flying technology-oriented companies like Amazon, Apple and Google.<\/p>\n Bonds and International stocks have both performed very differently than U.S. stocks, as illustrated in the table below. In fact, both bonds and international stocks are negative year-to-date. Bonds have been hit by rising U.S. interest rates and international stocks have been hit by threats of international tariffs from the U.S. as well as a rising value of the U.S. dollar versus their currencies.<\/p>\n Before you start abandoning these diversified investments and seek to participate in the winners, remember another steadfast tenant of investing\u2014\u201cBuy low, sell high.\u201d Keep this in mind when you consider that U.S. stocks have experienced a price return of 197% during the past 10 years versus price performance of 55% for international stocks. The Wall Street Journal reported that U.S. stocks are trading at their highest premiums to international shares in years. With \u201cbuy low, sell high\u201d in mind, which investments are you most interested in?<\/p>\n","protected":false},"excerpt":{"rendered":" Whether you are in the investment industry or not, one of the first lessons everyone learns is the importance of diversification. \u201cDon\u2019t put all your eggs in one basket,\u201d so to speak. Over time we have learned that diversification works. Stocks that are not alike will not perform alike, so oftentimes when one set of […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_et_pb_use_builder":"","_et_pb_old_content":"","_et_gb_content_width":"","jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2}},"categories":[122,119,123],"tags":[],"class_list":["post-6218","post","type-post","status-publish","format-standard","hentry","category-financial-planning","category-market-commentary","category-market-performance"],"jetpack_publicize_connections":[],"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"jetpack_shortlink":"https:\/\/wp.me\/p7kXxe-1Ci","jetpack-related-posts":[{"id":6519,"url":"https:\/\/schenkelberg.investments\/?p=6519","url_meta":{"origin":6218,"position":0},"title":"Superstars of the Indices","author":"J.J. Schenkelberg, CFA","date":"July 9, 2020","format":false,"excerpt":"Diversification is a key piece of a portfolio that is looking to control risk. Investopedia describes diversification as follows: \u201cA diversified portfolio contains a mix of distinct asset types and investment vehicles in an attempt at limiting exposure to any single asset or risk. The rationale behind this technique is\u2026","rel":"","context":"In "Market Commentary"","block_context":{"text":"Market Commentary","link":"https:\/\/schenkelberg.investments\/?cat=119"},"img":{"alt_text":"","src":"https:\/\/i0.wp.com\/schenkelberg.investments\/wp-content\/uploads\/2020\/07\/Pie-Graph.png?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/schenkelberg.investments\/wp-content\/uploads\/2020\/07\/Pie-Graph.png?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/schenkelberg.investments\/wp-content\/uploads\/2020\/07\/Pie-Graph.png?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/schenkelberg.investments\/wp-content\/uploads\/2020\/07\/Pie-Graph.png?resize=700%2C400&ssl=1 2x"},"classes":[]},{"id":6578,"url":"https:\/\/schenkelberg.investments\/?p=6578","url_meta":{"origin":6218,"position":1},"title":"S&P 500 Leaders – What Drives S&P 500 Index Performance","author":"J.J. Schenkelberg, CFA","date":"October 15, 2021","format":false,"excerpt":"When investors turn to market newsmakers they are often given S&P 500 index performance as a proxy for how the stock market has performed for the day, week, month, year. What they don\u2019t readily publicize is how many other thousands of stocks are in the investment market and how these\u2026","rel":"","context":"In "Market Commentary"","block_context":{"text":"Market Commentary","link":"https:\/\/schenkelberg.investments\/?cat=119"},"img":{"alt_text":"","src":"https:\/\/i0.wp.com\/schenkelberg.investments\/wp-content\/uploads\/2021\/10\/SP-top-ten.png?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/schenkelberg.investments\/wp-content\/uploads\/2021\/10\/SP-top-ten.png?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/schenkelberg.investments\/wp-content\/uploads\/2021\/10\/SP-top-ten.png?resize=525%2C300&ssl=1 1.5x"},"classes":[]},{"id":6792,"url":"https:\/\/schenkelberg.investments\/?p=6792","url_meta":{"origin":6218,"position":2},"title":"Same Story on Repeat. Once Again The S&P 500 Index Leads in 2024","author":"J.J. 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I would go so far as to say the S&P 500 is currently in a\u2026","rel":"","context":"In "Market Commentary"","block_context":{"text":"Market Commentary","link":"https:\/\/schenkelberg.investments\/?cat=119"},"img":{"alt_text":"","src":"https:\/\/i0.wp.com\/schenkelberg.investments\/wp-content\/uploads\/2025\/01\/image-1.png?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/schenkelberg.investments\/wp-content\/uploads\/2025\/01\/image-1.png?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/schenkelberg.investments\/wp-content\/uploads\/2025\/01\/image-1.png?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/schenkelberg.investments\/wp-content\/uploads\/2025\/01\/image-1.png?resize=700%2C400&ssl=1 2x, https:\/\/i0.wp.com\/schenkelberg.investments\/wp-content\/uploads\/2025\/01\/image-1.png?resize=1050%2C600&ssl=1 3x"},"classes":[]},{"id":6503,"url":"https:\/\/schenkelberg.investments\/?p=6503","url_meta":{"origin":6218,"position":3},"title":"Hindsight is 20\/20","author":"J.J. 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