The Truth About Diversification

QUESTION: Considering everything going on in the world—both good and bad—what should my investment play be right now?

ANSWER: Tariffs, wars, rising government debt, a slowing U.S. economy, interest rate questions. None of this sounds good, but we still have a rising stock market. How in the world does one invest with confidence in this environment?

The answer is something AMG has championed for 50 years: a well-diversified portfolio.

Yes, it might sound boring—but it’s anything but. Diversification is one of the most powerful tools available to investors. Yes, it’s old-fashioned risk protection: Don’t put all your eggs in one basket. But that’s only half the story. Diversification can also enhance returns.

If you’ve never heard that before, you’re not alone. It’s seldom discussed in popular media, or even geeky investment media. But if you think about it a bit, you will see the wisdom. We all know asset classes can disappoint us by unexpectedly dropping in value, forcing us to be patient and wait for the return. But assets can also surprise us on the upside, giving us the opportunity to harvest the profits. If we consistently capture these unexpected upsides, even if the allocations are small, we can significantly add to return.

Look at large-cap U.S. stocks. We all know they’ve done incredibly well over the past 20 years, but most investors are surprised to learn that they were not the top-performing asset class in 17 of those 20 years. In fact, eight different asset classes took the top spot at various times. When you maintain small exposures to a wide variety of assets, and rebalance after strong years, you position yourself to harvest returns from areas that many investors overlook.

That’s right: Diversification can both reduce long-term risk and enhance long-term return—something AMG has witnessed over the past five decades.

So, talk to an AMG advisor about expanding your exposure to areas you might not have considered, such as international bonds, natural resources, or energy. If you’re a qualified investor, consider exploring private-capital opportunities.