Building a Strong Investment Portfolio: The Power of Asset Class Diversity
Your retirement plan should be diversified and have a long-term approach. Economic conditions and market dynamics can be unpredictable. By holding a diverse range of assets, investors are better prepared to adapt to changing market conditions and reduce the risk of being overly exposed to a specific trend or event. Over the long term, a diversified investment approach may lead to more stable and sustainable growth. Investment returns tend to be random and unpredictable by asset class. The market “quilt” image below shows 14 years of returns for six asset classes and inflation, ranked from best to worst each year by annual investment returns. Each asset class is color coded for easy tracking.
Indices used: Commodities—Bloomberg Commodity Index, Bonds—Bloomberg Aggregate U.S. Bond Index, Inflation—U.S. Consumer Price Index (Seasonally Adjusted), Gold—S&P GSCI Gold Index, U.S. Large Cap—S&P 500 Index, Intl Developed Stocks—MSCI EAFE Index, Emerging Markets— MSCI Emerging Markets Index. Indices do not reflect the deduction of advisory fees, transaction charges and other expenses. You cannot invest directly in an index. Past performance does not indicate future performance.
The chart is interesting in that it is difficult, if not impossible, to find any kind of trend. It demonstrates the unpredictability and randomness of investment results, and that past performance does not predict future performance. This underscores the importance of diversification in your portfolio as a tool to help you reach your investment goals and manage risk. It is this reason that compels most financial planners to recommend that individuals have a well-diversified investment portfolio. The Servant Solutions’ LifeFund series of investment options provide this needed diversification, as they include multiple asset classes and are weighted by your age and time horizon to, and through, your retirement. Designed based on your birth year, each LifeFund is carefully crafted to include six to eight mutual funds appropriate for your age and how long you have to work before retirement. Each investment mutual fund is doing a particular job to bring diversification and strength to the portfolio. You can learn more about our LifeFunds here.
We care for church and non-profit staff and want them to have peace of mind and financial security in retirement. Since 1949, we have helped pastors, churches, universities, and other ministry organizations successfully plan for their futures and build added financial security for retirement. Want to know more? Give us a call anytime. We’d be glad to discuss your retirement account and provide guidance and information. We feel so very privileged to serve you and always want to serve you well. God bless you richly in your particular ministry and calling.