Diversification – Protecting Your Investment With Notes – November 2014 Newsletter


Don’t put all your eggs in one basket is a saying that has been around for the ages. I think most of us would agree that it makes sense and that diversification can be an added benefit to almost anything. Cross training builds different muscles in your body thus protecting you as a whole. The same can be said of diversification in your investing.

Typically when individuals invest, they invest the majority of their money in stocks and bonds. While they have diversified their investment, they have really only used one other category of investments to protect themselves should something go wrong. So what happens when both stocks and bonds perform poorly?

Another view is that the likelihood that investors will need to diversify well beyond traditional stock and bond allocations will rise significantly in the years to come. The reason is simple: chances are that the decades ahead will not be buoyed by the bull market for bonds, which has been in place for more than 30 years. Under those conditions, investors will be faced with the need to rely more on other investments to drive their returns.

So what happens when both stocks and bonds underperform their long-term averages at the same time? This occurs more often than you might think. In fact since the inception of public indexes in 1972, markets have experienced this simultaneous underperformance 23% of the time. To put this in perspective, a portfolio that is allocated 60% to stocks and 40% to bonds generated a 1.8% average annual total return over these periods. Real estate, which we think of as the original real asset, performed much better with a 10.9% average annual total return over the same period.

So maybe you need to consider a further diversification into real estate notes to protect yourself. If you think you or someone you know might like to learn more, contact us here.

Thanks and have a great day!