A diversified portfolio will reduce your portfolio volatility and allow you to sleep better at night. But, what does it actually mean to have a “diversified portfolio?”
Simple Actions for a Diversified Portfolio
Put half your money in an S&P 500 Fund (VFINX – Vanguard 500 Index in yellow) and half in US Treasuries (VUSTX – Vanguard Long Term Treasuries in green).
The red line is a 50%-50% blend, rebalanced monthly. The result is a nearly straight line up with very little volatility. In fact, you’ve heard that you should put some money in bonds and some in stocks. But you never understood why. This is called good risk-adjusted return and is the result of a quality diversified portfolio.
In the most recent market downturn since 9/20/2018, your red portfolio lost 4.81% while the yellow broad market lost 8.19%. Simple . . . but there is more.
A simple analysis to shift assets between bond and funds over the last 30 years turned $100K into $2,765,000 million with lower risk than owning just equities.
FastTrack’s database includes history back to 1988, so we can analyse these, and any other, strategy through multiple business cycles, bull and bear markets, interest rate hikes and cuts, and much more.
Only Scratching the Diversified Portfolio Surface
In this example we used two very big, very broad, very popular Vanguard indexes. Adding Emerging Markets, Commodities, Sectors, etc will further enhance portfolio diversity and boost returns. FastTrack’s software can easily model a new, extended portfolio of more funds, ETFs or stocks.
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