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Diversification

The Goal of Diversification

The goal of diversification is to increase returns and/or low risk of your portfolio. This goal is the same regardless of your risk profile (low risk investor or high risk investor).


The basics of diversification

Diversification has TWO components…

  • Multiple Investments – a well diversified portfolio must own multiple investments. This tends to be obvious.
  • …that do not move up and down together – the multiple investments must have different performance behavior (measured by correlation) and not always move up and down together. This is often forgotten by investors.

*Multiple investments that all move up and down together provide no diversification benefits.


This portfolio is a typical starting point for diversification including 4 of the most common asset classes.

Grand Illusion Portfolio

Allocations

Compounded Returns

Key Statistics

Statistics ()

Key Statistics Illustration

Bear Market Risk Mitigation

Periods Difference

Additional Performance Comparisons

Yale Endowment…the model for Super-Diversification

The Yale University Endowment has been a pioneer in the investment community since the '80s led by Chief Investment Officer David Swesen. The Endowment has invested in non-traditional (alternative) assets proving that doing so can both improve long-term returns and reduce risk of loss. Patton's Super-Diversified Portfolio are modeled after the Yale Endowment, not in an effort to replicate their process but instead to learn from it, with the goal of also producing improved long-term returns and some reduced risk of loss.

Yale Endowment Exclusive Content

Better Diversified Portfolio

Allocations

Compounded Returns

Key Statistics

Statistics ()

Key Statistics Illustration

Bear Market Risk Mitigation

Periods  vs 

Additional Performance Comparisons

Low correlation is the key to diversification

Diversification is about having multiple investments that do NOT always move up and down together, technically those with low correlation. Correlation simply measures how closely two things move together. A correlation of 1.0 means that they ALWAYS move the SAME way at the same time, -1.0 means that ALWAYS move the OPPOSITE of one another, and a correlation of 0 means that their movements are entirely random from one another (the performance of one does not tell us anything about the performance of the other). A well-diversified portfolio is one with investments that statistically have low or no correlation.

Correlation

Select Report Period

Asset Description S&P 500
Source: see disclosure

1000's of securities in a portfolio

Patton's Super-Diversified Portfolios a diversified across many asset classes primarily via low cost index funds holdings, in aggregate, 1000's of individual securities. These portfolios are extremely well diversified.

List of Funds

Asset Class Fund Symbol Number of Securities
Source: Steele Mutual Fund Expert Database