Diversification is Still Your Best Option

I never get tired of sharing The Callan Periodic Table of Investment Returns from Callan Associates Inc.

20160725 Callan Periodic Table

Taking a look at the mosaic created by recording the top asset class year to year is especially important in our post-Brexit world as investors question whether they should remain invested internationally.

Although down for the last several years, emerging markets held the top spot as recently as 2012 and 2009. And if international small company stocks were shown in this chart, you would have seen strong performance in that asset class in four of the last six years. (Note: Callan Associates publishes The Periodic Table Collection which shows other asset classes and the asset classes above in different formats. Check it out.) Holding a globally diversified portfolio positions you to benefit when outperformance occurs and smooths out the ride along the way.

In today’s challenging market, the question is not if you should remain diversified, but whether you are diversified enough. If the impact of Brexit has you worried, perhaps you got carried away and invested too heavily in equities during the post-Recession rally in the U.S. and had too little invested in fixed income.

When your portfolio is properly diversified, events like Brexit should not alter your course. Rather than run to cash, it might be the time to consider contributing more to your retirement plan. For younger investors these bouts of volatility often mean buying opportunities.

When the United Kingdom (UK) voted to leave the European Union (EU), a host of questions about Europe’s economic future surfaced. Perhaps most importantly, the Brexit decision fans the populist fire spreading across the globe, increasing the risk that other member countries of the EU could follow the UK’s lead. While we will carefully watch the impact the UK’s decision continues to have on the global markets, it is not a time to alter properly diversified portfolios.

Just look at the Callan chart for guidance. In this case, a picture truly is worth a thousand words!

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