Know The Difference Minute

People don’t think about diversification until it doesn’t work. 

What is Know The Difference Minute?

Hot topics, fresh stories and useful formation; all in 60 seconds

Over time versus All the time
Welcome to the Know the Difference Minute for Thursday, August 3rd.
Aren’t bonds supposed to diversify stocks? Most people don’t think about their car’s ignition system until it stops working. Similarly, people don’t think about diversification until it doesn’t work.
What is diversification? It’s splitting up money across different types of investments.
Why do it? Because we can’t perfectly predict the future. We can hedge our hubris by not putting all our chips on one particular outcome.
How well does it work? Over time, it works well, improving not only the result, but also the ride getting there.
Does it work all the time? No. There’s a huge difference between something working over time and all the time. Any day, month, or year, diversification can look like it’s broken. The virtues of diversification require the virtue of patience. That’s hard. That’s where working with a professional can help.
I’m Brian Jacobsen, Chief Economist at Annex Wealth Management. That is your Know the Difference Minute.