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With volatility: Diversification is the boring winner

With volatility: Diversification is the boring winner

March 09, 2022

Volatility is an expect part of investing. A diversified portfolio is one of the best ways to reduce risk and increase the odds of long-term investment success. 

2022 has been off to a challenging start for most investors.

Stock prices have been down 6 of the past 9 weeks, and the major averages are either in or teetering on correction territory. 

Bond prices are lower, and yields are higher, which has created an opportunity for some but has resulted in losses for others.

The Fed is expected to raise interest rates at its March meeting (which I recently have shares may actually be a good thing), where they may attempt to thread the needle of cooling inflation while maintaining the economic recovery.

Geopolitical events have added a layer of uncertainty and are one of the main drivers of volatility. Energy prices continue to move higher as events unfold in Eastern Europe.

Corporate earnings are a bright spot.
The job outlook is improving - 678,000 jobs added in February1
And it appears that we’re moving past the pandemic.
But these green shoots tend to be overlooked.

We are expecting this year to be volatile. That means the daily ups and downs we get in the market can be expected to be higher ups and lower lowers. It's an expected - if unpredictable - part of investing. Right now we're talking about Russia, but in the past from Covid to the GFC, there is always something to bring concern. 

As shown below, there are always winners and loser every year. Because of this unpredictability, we remain firm in our belief that a diversified portfolio is one of the best ways to reduce risk and increase the odds of long-term investment success. 

Image/Exhibit 1: Diversification: The boring winner2 3 4


2. Annual performance from 1/1/2012 through 12/31/2021. Asset-class proxy indexes: U.S. Large = Russell 1000, U.S. Small = Russell 2000, Int’l Equity = MSCI EAFE, EM Equity = MSCI Emerging Markets, Core Fixed = Bloomberg Aggregate Index, High Yield = Bloomberg US Corporate High Yield Total Return Index, EM Debt = 50% JP Morgan EMBI Global Diversified/50% JP Morgan GBI EM Global Diversified thereafter, TIPS = Bloomberg 1-5 Year US TIPS Index, Commodities = Bloomberg Commodity Index, Long Duration = Bloomberg US Long Government/Credit Index, Short-Duration = ICE BofA 1-3 Year US Treasury Index, Cash = ICE BofA USD 3-Month Deposit Offered Rate Constant Maturity Index. Sources: Index providers, SEI. Past performance is not a guarantee of future results.

3. This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice and is intended for educational purposes only. There are risks involved with investing, including possible loss of principal. Diversification may not protect against market risk. Index returns are for illustrative purposes only and do not represent actual portfolio performance. Index returns do not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results.

4. Exhibit 1 is information provided by SEI Investments Management Corporation, who is a wholly owned subsidiary of SEI Investments Company. Client One Securities, LLC, IWM Financial, Inc. and SEI Investment Company are not affiliated.