“Diversification is the only free lunch.”
~ Harry Markowitz
Retirement is a long-term time horizon, hopefully decades.
Those preparing for retirement relatively soon, and retirees face a practical consideration: even the two main investment assets, stocks and bonds, can work against investors for years.
So, what is the risk of being in the wrong market at the wrong time?
Here are returns by decade for stocks and bonds:
Now consider the negative decades.
A decade is not a short time horizon to lose money!
Here are the two relevant observations from the chart:
- From 2000-2009, the S&P500 (stock) index realized negative annualized returns!
- Since 2020, the U.S. 10-Year Treasury (bond) index has realized negative annualized returns!
Although “lost decades” are not overly common, they do represent real and even recent outcomes. The overall point here is that diversification across asset classes is always crucial. That’s why our portfolios can dynamically manage your asset allocation and provide further defensive strategies that consistently diversify your investment risks.
“Asset allocation eliminates the risk of being in the wrong market at the wrong time.”
~Richard A. Ferri
