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For starters, allow us to provide a quick definition:
Diversification (n.): (1): the process of making diverse; giving variety to (2): to divide funds with the expectation that the positive performance of some will offset negative performance of others (as in investing).
Diversification can be compared to a kitchen sink casserole; it takes time, requires a handful of ingredients and if not executed well, it can result in an experience that is hard to stomach. Just as we believe in making use of food that may spoil, we also believe in diversification. However, there are a few issues that investors should consider when developing a diversification strategy.
Why Should I Diversify?
The goal of diversification is to reduce risk. The logic is quite simple. If you invest in things that do not move in the same direction, at the same time, or at the same pace, then you will reduce your chances of losing all of your money at the same time or at the same pace. For example, in 2008 the S&P 500 had a negative return of 37.00%, which, on a $100k investment would have resulted in an ending value of $63k. Alternatively, if you had allocated just half of your funds to the fixed income, your ending value at the end of 2008 would have been approximately $84,120.
How Do I Diversify?
Diversification is more than holding different types of investments like stocks and bonds. It is also important to diversify within your stocks and bonds. Within your stock piece, it is important to allocate to companies within different sectors of the market (i.e., technology and healthcare). It is also important to diversify among the size of companies in terms of their representation in the overall market. This is referred to as market capitalization ([# of shares in the market x stock price] = market capitalization). Within your bond piece, it is important to diversify among different types of bonds (i.e., government bonds, corporate bonds, and high-yield bonds). Different types of bonds respond differently to a change in interest rates so spreading funds among various types can help reduce interest rate risk as well as default risk (the risk that the corporation, for example, goes out of business and cannot pay interest or return principal).
As you might suspect, diversification can be challenging because it requires an investor to make an informed investment decision on a number of investments. Those that do not believe they have the time, knowledge, or desire to do the research required for diversification may elect to diversify by using mutual funds or ETFs. Through these vehicles, investors can delegate the research and selection process to the fund manager who pools their funds with other shareholders to buy a large number of investments.
Do I Need to Diversify Across Firms?
Clients will often explain to me that the reason they have so many accounts spread across different companies is to diversify. This may have been necessary 30 years ago, but today you can buy the same stocks and ETFs through TD Ameritrade that you can through Schwab. Most large brokerage firms have selling agreements with the major mutual fund companies to offer their funds as well (i.e. Vanguard, American Funds, Fidelity). Diversifying across firms makes it increasingly difficult to manage your investments effectively. Putting together a clear picture of your portfolio and gauging performance will take a lot of manual work and tedious calculations from your statements.
How Can Diversification Go Wrong?
Diversification can go wrong on either extreme, too little, or too much. A portfolio invested in 100% stocks, even if spread among a number of diverse stocks is too little because of the lack of other investment types like bonds. Similarly, a portfolio of 5 stocks weighted equally at 20% is too little. Opinions vary on the amount of exposure (percentage) that should be allocated to a particular investment. We generally believe that any more than 5% in one investment is considered concentrated; however, if you are using multiple strategies managed by independent managers, then as much as 9% in an investment can be considered conviction versus concentration.
Warren Buffet once said, “Wide diversification is only required when investors do not understand what they are doing.” There is such a thing as “over-diversification”. When adding additional investments to a portfolio, each additional investment lowers risk but remember lower risk = lower return. Over-diversification occurs when an additional investment lowers the potential return more than it offsets the potential risk. Over-diversification can also be sectional in nature. Sectional over-diversification occurs when there are a large number of investments in a particular industry and the behavior of the investments is quite similar. Take for example Pepsi and Coke. The companies are similar in a number of ways so rather than buying both, we would recommend buying the company that presents the best value.
Over-diversification is not only time-consuming and inefficient, trading commissions on a large number of investments can be quite costly which may ultimately reduce your overall return.
Diversification Tips
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Important Disclosure: This content is for informational purposes only. Opinions expressed herein are subject to change without notice. Beacon Pointe has exercised all reasonable professional care in preparing this information. Some information may have been obtained from third-party sources we believe to be reliable; however, Beacon Pointe has not independently verified, or attested to, the accuracy or authenticity of the information. Nothing contained herein should be construed or relied upon as investment, legal or tax advice. Only private legal counsel may recommend the application of this general information to any particular situation or prepare an instrument chosen to implement the design discussed herein. An investor should consult with their financial professional before making any investment decisions.
PROJECT UPDATE IMOKALEE COMPLETE STREETS TIGER GRANT DESIGN-BUILD PROJECT JUNE 2025PROJECT UPDATEThe Immokalee Complete Streets Project is finished and includes new sidewalks and drainage along miles of local streets. In addition to the sidewalks, the project included reconstruction of many existing residential driveways and improvements to the drainage swale along your property line within the Collier County Right-of-Way (ROW).We need to work together to keep these new sidewalks and drainage improvements in good condition. Please do your part to help maintain the improvements by complying with the existing codes which require property owners to assume all maintenance and repair responsibilities within the Collier County ROW. These responsibilities include mowing the grass and protecting the sidewalk and driveway from damage.We are requesting your help to maintain these improvements including: Drainage cutting the grass within the swale is very important because it will allow the drainage system to function. Picking up the litter before you mow will also keep the community clean. Pedestrian Safety do not park on the sidewalks, it is against the law and blocks the safe passage of children and adults. Heavy trucks and equipment can damage the sidewalk. The construction of sidewalks is expensive, and your help is needed to maintain them. Please remember it is illegal to park on a sidewalk. Both the Collier County Sheriffs Office and the Collier County Code Enforcement Division are monitoring to encourage voluntary compliance. Citations will be issued if the law is broken. It is the property owners responsibility to assure that all your visitors, tenants, and family members obey the law. You, as the property owner, are responsible for maintaining the driveway and ROW.If you rent your property, please inform your tenants of this information. As a landlord, you are responsible for providing your tenants with this information.We hope you enjoy the improvements along the county roadways and please continue to assist your neighbors as we work to improve the health and safety of our community.For more information about the project, please contact: CHRISTIE BETANCOURT ASSISTANT DIVISION DIRECTOR COMMUNITY REDEVELOPMENT AGENCY (CRA) Email: Christie.Betancourt@colliercountyfl.gov Phone: (239) 867-0028 IMMOKALEE CRA Collier County Community Redevelopment Agency
This June during Alzheimers & Brain Awareness Month, the Alzheimers Association is encouraging all Americans to take charge of their brain health. Today, there are more than 7 million Americans living with Alzheimers. Two-thirds of Americans have at least one major potential risk factor for dementia. The brain changes that cause Alzheimers are thought to begin 20 years or more before symptoms start, which suggests that there may be a substantial window of time in which we can intervene in the progression of the disease. Experts believe there isnt a single cause of Alzheimers. Its likely the disease develops as a result of multiple factors. While not a direct cause of Alzheimers, the greatest known risk factor is advancing age. Although some risk factors like age cant be changed, as many as 45% of dementia cases may be attributable to modifiable risk factors, such as high blood pressure and lack of physical activity. Research shows that adopting healthy behaviors like getting exercise and good quality sleep can improve your brain health and reduce the risk of cognitive decline. Based on mounting scientific evidence, the Alzheimers Association encourages individuals to incorporate these 10 Healthy Habits such as challenging your mind and eating healthier foods to help protect brain health. Be Proactive in Addressing Brain Changes Only half of those with Alzheimers disease ever receive a diagnosis, delaying needed care and potentially putting them at risk. Another important way to take charge of your health is to know the early warning signs of Alzheimers and other dementia and be proactive in addressing them. Early detection and diagnosis of Alzheimers is more important than ever. Early detection offers significant benefits for the person diagnosed and their loved ones, including greater access to treatment options and the ability to plan for the future. There are now treatments that can slow disease progression for people in the early stage of Alzheimers, making a timely diagnosis critically important. If you or someone you know is experiencing memory or thinking problems, its important to get it checked. Talk to your doctor so you can make an informed decision on available treatments to determine if they are right for you. Join the Fight to End Alzheimers During Alzheimers & Brain Awareness Month, the Alzheimers Association invites everyone to join us in the fight to end Alzheimers and all other dementia. Heres what you can do: Adopt the 10 Healthy Habits: It is never too early or too late to start taking positive actions for your brain. Visit alz.org/healthyhabits to learn more! Go purple: Throughout the month of June, go purple the color of the Alzheimers movement to raise awareness of the disease. Dress in purple and share your story on social media using the hashtag #ENDALZ. Join the fight: Advance the care, support and research efforts of the Alzheimers Association by participating in our fundraising events Walk to End Alzheimers, The Longest Day and Ride to End ALZ. Visit alz.org/fundraisingevents. Get information and support: Access education programs and dementia care resources. Visit alz.org/educationalprograms. Volunteer with us: As an Alzheimers Association volunteer, you can help people in your community take steps to reduce their dementia risk and recognize the signs of Alzheimers. Visit alz.org/volunteer. Advocate: Raise your voice tell Congress to act today. Visit alz.org/congressconnects. Accelerate research: It takes everyone to advance Alzheimers and dementia research. Alzheimers Association TrialMatch is a free, easy-to-use service that connects individuals living with cognitive impairment, Alzheimers disease or another dementia, caregivers and healthy participants with current research studies. Visit alz.org/trialmatch. Donate: Empower people at every age and stage of life to take charge of their brain health support the Alzheimers Association! Visit alz.org/donate. We are proud to partner with the Alzheimers Association in the fight against Alzheimers and other dementia. To learn more visit alz.org/abam.
Beacon Pointe is one of the nations largest Registered Investment Advisory (RIA) firms, providing comprehensive financial solutions for institutions, defined contribution plans, high-net-worth individuals, and families. Our success is driven by our peoplea team of talented, diverse, and passionate professionals committed to fostering an uplifting company culture and delivering premier service experiences to our clients.Our ServicesPrivate Wealth ServicesOur Private Wealth Management services offer comprehensive wealth planning and customized investment strategies, empowering clients to make well-informed financial decisions that align with their life goals.Institutional ConsultingWe provide objective and transparent investment solutions, offering long-term strategic planning tailored to the unique portfolio goals and mission of each institutional client.Retirement Plan ServicesOur team delivers expert investment guidance and comprehensive service solutions for 401(k)s, 403(b)s, and non-qualified deferred compensation plans, ensuring clients receive the highest level of fiduciary support.Advisor PartnershipsBeacon Pointe collaborates with successful RIAs and wealth advisors nationwide, fostering synergistic partnerships focused on enhancing efficiencies, value, and long-term growth.With a client-centric, fiduciary-first approach, Beacon Pointe is dedicated to providing strategic financial guidance that helps individuals, families, and institutions achieve lasting financial success.
Beacon Pointe is one of the nations largest Registered Investment Advisory (RIA) firms, providing comprehensive financial solutions for institutions, defined contribution plans, high-net-worth individuals, and families. Our success is driven by our peoplea team of talented, diverse, and passionate professionals committed to fostering an uplifting company culture and delivering premier service experiences to our clients.Our ServicesPrivate Wealth ServicesOur Private Wealth Management services offer comprehensive wealth planning and customized investment strategies, empowering clients to make well-informed financial decisions that align with their life goals.Institutional ConsultingWe provide objective and transparent investment solutions, offering long-term strategic planning tailored to the unique portfolio goals and mission of each institutional client.Retirement Plan ServicesOur team delivers expert investment guidance and comprehensive service solutions for 401(k)s, 403(b)s, and non-qualified deferred compensation plans, ensuring clients receive the highest level of fiduciary support.Advisor PartnershipsBeacon Pointe collaborates with successful RIAs and wealth advisors nationwide, fostering synergistic partnerships focused on enhancing efficiencies, value, and long-term growth.With a client-centric, fiduciary-first approach, Beacon Pointe is dedicated to providing strategic financial guidance that helps individuals, families, and institutions achieve lasting financial success.
Beacon Pointe is one of the nations largest Registered Investment Advisory (RIA) firms, providing comprehensive financial solutions for institutions, defined contribution plans, high-net-worth individuals, and families. Our success is driven by our peoplea team of talented, diverse, and passionate professionals committed to fostering an uplifting company culture and delivering premier service experiences to our clients.Our ServicesPrivate Wealth ServicesOur Private Wealth Management services offer comprehensive wealth planning and customized investment strategies, empowering clients to make well-informed financial decisions that align with their life goals.Institutional ConsultingWe provide objective and transparent investment solutions, offering long-term strategic planning tailored to the unique portfolio goals and mission of each institutional client.Retirement Plan ServicesOur team delivers expert investment guidance and comprehensive service solutions for 401(k)s, 403(b)s, and non-qualified deferred compensation plans, ensuring clients receive the highest level of fiduciary support.Advisor PartnershipsBeacon Pointe collaborates with successful RIAs and wealth advisors nationwide, fostering synergistic partnerships focused on enhancing efficiencies, value, and long-term growth.With a client-centric, fiduciary-first approach, Beacon Pointe is dedicated to providing strategic financial guidance that helps individuals, families, and institutions achieve lasting financial success.