Diversification and Asset Allocation are often used in the same context, but the concepts are very different.
Don’t put your eggs in one basket. You can be diversified with multiple, individual stocks, but chances are when the stock market is down, so is your entire portfolio of stocks.
Think of your financial portfolio as you would your garden. You can plant a lovely bed of tulips in an assortment of colors so your “garden” is diversified. But in actuality, this tulip bed is not considered an ideal garden because your tulips only bloom in the spring. Equally as important, the joy these tulips bring only last a few weeks.
With a truly diversified, well-planned garden, you will have multiple types of flowers and plants. Each will work together and provide its own beauty at different times of the year. A carefully constructed portfolio is like a garden: you want to be blooming year-round.
Financial planning integrates a realistic portfolio return that is consistent with your risk tolerance. It is important to balance your need to take risk with your risk capacity. If the market hits at the wrong time, would you be able to recover? In that event, what changes in your lifestyle would be required? Is it worth taking the risk?
At Key Financial, comprehensive financial planning helps answer your questions, and portfolio decisions are made and adjusted to help meet your needs.
*There is no guarantee that a diversified portfolio will outperform a non-diversified portfolio in any given market environment.