A simple definition for diversification: “Don’t put all your eggs in one basket.”
But many investors only diversify in one dimension: stocks, bonds and cash. Asset allocation is good, but diversification should go further.
A second dimension would be to add time diversification. There are three types of money: now money (for today), later money (for retirement), and never money (what you leave for others). Do you have a strategy for each one?
A third dimension would be to add directional diversification. Markets go up, and markets go down. Why do most investors only make money when markets go up, and then hope not to lose a lot when markets go down? Why not give yourself the opportunity to make money in both directions? You can do this… without having to pay 2 & 20.
Is your advisor giving you limited diversification… or dimensional diversification?
If I’ve managed to catch your interest, dimensional diversification doesn’t have to replace what you are currently doing. It can complement it. Ask me to show you how.
*Diversification seeks to reduce the volatility of a portfolio by investing in a variety of asset classes. Neither asset allocation nor diversification guarantee against market loss or greater or more consistent returns.