While the rest of the investment world had a frenzy over the stock market decline last week, KFG clients took the decline in stride….maybe with a yawn! We’ve “been here and done that.”
Indeed, the Dow declined about 5.2% from its all-time high on July 19th. However, a portfolio with asset class diversification was down around 3.5%. That is 33% less of a decline than the Dow.
What is asset class diversification? In addition to the usual asset classes of US and international stocks and bonds, a diversified portfolio will also include real estate, commodities and natural resources, market neutral funds, junk bonds, and Treasury Inflation Protected Securities (TIPS).
KFG clients have heard me say for years that the recent markets are doing far better than what is sustainable over a long period of time. Good investors know that what goes up will not continue to go up forever. Personally, I think another 5% to 10% fall in the Dow would be a good thing, washing a lot of optimism out of the market and building a solid foundation for another advance. But it really doesn’t matter what I think, does it? The market will do what the market is going to do. We just need to have a well-diversified portfolio and hang on for the long run.