For the better part of two years, the hardest thing to own was a diversified portfolio.
Not because it lost money. Because it was boring while everything else looked brilliant. A small handful of giant technology companies carried the whole market higher, month after month, while nearly everything else sat still. Small companies. International markets. Steady dividend payers. The holdings that fill out a real long-term plan looked like dead weight, and they looked that way long enough that people started asking the question out loud. Why do we own this? Why not just own what's winning?
I understand the question. It comes from the oldest instinct in investing. When prices rise, we believe value is rising. When prices sit still, we believe risk is rising. That instinct feels like wisdom. It is the opposite of wisdom. It is the exact wiring that leads investors to buy the most of whatever has already run the furthest, right before it stops running.
And then, sometime over the past year, the running stopped.
The story of this year is not the giants. It is everything else. The small companies are ahead of them. The international markets are well ahead of them. Even the dividend payers, left for dead a year ago, have come back to life. The investor who held a diversified plan and kept rebalancing, trimming a little of what had run to buy a little of what had not, is not just holding on. That investor is having a very good year.
The financial media has a phrase for this. They say diversification is working again.
It never stopped working. It cannot stop. Diversification is not a strategy that goes in and out of season. It is the honest admission that nobody knows which part of the market will lead next, so we own all of it and let time do the sorting. The tortoise wins the race every time, because the race is the whole race, not last year's lap. What changed this year is not the strategy. What changed is that the scoreboard finally caught up to it.
Here is what I will not do with this story. I will not tell you what the market does next. Nobody can. The market is not cheap today, and a real decline can begin at any time, for reasons no one will see until afterward. When it arrives, it will feel different from every decline before it. It always does. And it will end the way every decline before it has ended, with patient owners of great companies carrying on, and everyone who jumped off the rollercoaster in the middle wondering how to get back on.
The plan already accounts for this. That is what the plan is for.
If the last two years tested your patience, you are in good company. Patience is supposed to be tested. That is how you know it is the real thing.
One last thing. If you are not receiving the help you deserve from your current advisor, or you manage your own portfolio and would like a second opinion, contact my office. The conversation costs you nothing but a little time. There is no wrong time to do the right thing.