Graphic Lessons from the 'quilt chart'

Focus on the big picture

If there's something in your portfolio that you dislike, it's a good sign it may be diversified. Nobel Laureate Harry Markowitz famously said that diversification is "the only true free lunch in investing," but the truth is that it's not entirely free: the cost is discomfort. 

As you can see from the "quilt chart1" above, individual asset classes took turns being the "hero" or the "villain," but the overall performance of the moderate diversified portfolio fell somewhere in between. This is why diversification can feel uncomfortable, especially during the "good times" when your portfolio appears to be missing opportunities. 

The key is to focus on the investment strategy of your whole portfolio rather than trying to fine-tune its individual pieces. By design, a well-diversified portfolio seeks to perform based on your investment objectives and risk tolerance, which can range from conservative to aggressive. It's far easier to calibrate your expectations around your long-term portfolio performance as a whole, rather than make decisions based on the randomness of individual asset classes' short-term returns.

Key Takeaways:

Are you diversified? Have a conversation with your UBS Financial Advisor today.