I often discuss the importance of diversification, but it’s worth revisiting the concept with fresh eyes in a market filled with mixed signals, tariffs, volatility, talking-head panic, and uncertainty. While “being diversified” sounds like the responsible thing to do, how you diversify and how much is just as important as the idea itself.
(Side note, don’t drain your brain and soul by watching too much CNBC Money Market all day, it’s not good for your well-being.)
It’s tempting to spread your investments across too many funds, sectors, or asset classes in the name of safety. But when your portfolio is scattered in every direction, it becomes incredibly hard to manage and even harder to benefit from; this is the trap of diworsification, holding so many positions that your returns get diluted, and your strategy loses focus. In today’s market, where clarity is already hard to come by, this approach can cost you!
Being Prepared for Turbulent Stock Markets and Shaky Economies
Take the old 60/40 rule, for example. That standard mix of 60% stocks and 40% bonds might be a decent starting point, but it doesn’t make sense for everyone. For example, one of my clients had more aggressive long-term goals, and through thoughtful planning, we landed on a 63% stock allocation instead. Arbitrary rules don’t cut it in a market that doesn’t follow a script; it’s the difference between being “all set” with DIY financial planning, instead of being optimized by working with a professional.
So, how do you diversify the right way? First, recognize that each account you own should serve a specific purpose. Your retirement account might hold long-term growth assets, while your shorter-term savings account may favor stability and liquidity. The goal is to align your holdings with your goals, not some generic template.
Alternative assets can also play a powerful role here. Real estate, private credit, or commodities that are negatively correlated with the stock market can provide real diversification, especially in your third bucket of retirement planning, where you have more flexibility to be creative.
Don’t Fear the Bear
Of course, bear markets tend to make everyone rethink their strategy. But they’re not always something to fear. If your plan is designed to weather storms, you won’t need to abandon ship when the skies darken. You wouldn’t head into a hurricane on a 15-foot Boston Whaler boat built in the 80s; you’d want something more substantial to weather the storm.
Diversification isn’t about holding everything, but building something strong enough to handle whatever comes next.
Turbulent stock markets will come and go, but clarity and discipline are always in style. If you’re wondering whether your diversification strategy is helping or holding you back, let’s talk.
As a family financial planner, I can help you get clarity and build a strategy that’s made to weather the storms.
