My favorite way to diversify Investment Portfolios...
Stock-Markets / Investing May 01, 2007 - 09:33 AM GMT
Tony, here. In just two weeks, I'll be flying over to Asia. It's going to be a whirlwind trip, with stops in Hong Kong, Shenzhen, Bangalore, Singapore, and Manila. And I'm frantically trying to put together all the last-minute preparations.
That's why I've asked Dan Ascani, Executive Vice President of our separate affiliate, Weiss Capital Management, and Portfolio Manager of three ETF programs, including the Weiss ETF Strategic Allocation Portfolio, to fill in today.
My favorite way to diversify …
Only a few years back, most investors employed a traditional stock and bond portfolio to achieve their financial goals.
It was also a time when investing primarily in the U.S. provided investors with some of the most promising investment opportunities the world had to offer.
Today, I believe that both of these old investing tenets may no longer hold true.
In fact, I think it may be more important than ever to consider diversifying your investments in two important ways — globally (both the U.S. and overseas) and by asset type. Here's why …
The U.S. still offers a broad range of investment opportunities. But under the right conditions, it may be possible to get higher returns, with managed risk, by including investments from various areas of the world in your investment portfolio.
Investment professionals have been using broad diversification like this for years — think of the number of hedge-fund managers who have been successful, in part, because of their international trading experience.
However, many individual investors have yet to catch on to the potential benefits of diversification.
Here's what I mean …
I've been following the markets my entire adult life, and I love watching trends develop. And one thing I've learned is that a picture is worth a thousand words. So to show you why I strongly encourage diversification for Weiss Capital Management's clients, take a look at this chart …
The height of the bars in the chart shows the percentage by which foreign stocks surpassed or lagged U.S. stocks. And as you can see, over the rolling 12-month periods, international and U.S. stocks regularly take turns outperforming each other.
Now, it's not easy for investors to figure out when one group will start its next period of outperformance. But maybe they don't have to!
Reason: By allocating a portion of their assets between international and domestic stocks, they'll automatically participate in each market cycle.
Without hindsight as a guide, it's virtually impossible to be certain how long each group of stocks will outperform the other. So it's not a far stretch to recognize that investing globally — holding both domestic and international investments — may provide the greatest opportunity for the long haul in exchange for the risks of owning equities.
Of course, I think investors also should consider diversifying across different asset classes — stocks, bonds and alternatives such as precious metals.
Again, this is important because more diversification, especially when based on a prudent allocation method, is associated with reduced risk. At the same time, it can open up even greater chances for growth, especially when encompassing such a broad range of asset classes all over the world.
Here's perhaps the best part: These days, diversifying your portfolio doesn't have to be difficult …
ETFs Make it Easy to Get Stakes in Different Countries and Asset Classes
When it comes to diversification, I think it's smart to choose the most flexible, lowest-cost investment vehicles you can find. And for me, that's far and away exchange-traded funds — ETFs.
These break-through investment vehicles not only make it easy for investors to achieve diversification around the world, including the U.S., and across varied asset classes, they do it all with lower costs and greater flexibility than traditional mutual funds.
More importantly, with almost 500 ETFs now available and more expected to come later in the year, a diversified, multi-asset-class allocation strategy can now be accomplished in a single brokerage account.
For example, you can use ETFs to invest in stocks from Europe, the United Kingdom, Latin America, the Pacific Rim and China … U.S. Treasury and corporate bonds … gold, commodities, and other inflation-sensitive assets … even the real-estate sector.
Now that's what I call the ultimate in diversification.
In fact, by using only ETFs — in a single account — you can own a broadly diversified stake in what I believe are some of the world's best assets. I'm talking about …
- Some of the most-promising industry sectors in the United States
- Some of the most-reliable income-producing investments, such as bond ETFs and high-dividend ETFs
- In-demand natural resources, including gold, silver and energy ETFs
- Rapidly-growing foreign economies through ETFs tied to countries like China and Brazil and more developed economies in Europe and Asia
- Even some of the most-solid foreign currencies, with ETFs linked to the euro, the Swiss franc or the Japanese yen.
This, to me, is the ultimate in diversification. Look at the past five years ending March 31, 2007…
The S&P 500 Index was up only 35.5% over the same period and the Lehman Aggregate Bond Index was up only 29.8%. 1
Most investors who limited their diversification strictly to U.S. stocks and bonds were likely to see performance that was generally limited to that range.
Meanwhile, over the same five-year period, the MSCI EAFE ® Index, which tracks a broad range of international investments, rose 108.1% and the Goldman Sachs Commodity Index was up 82.8%. 2
Of course there are no guarantees that this trend will continue in the future. However, investors who expanded their horizons and added foreign stocks and commodities to their stock and bond portfolio not only had more diversification, they were also able to enhance their overall portfolio returns during major market advances. During market declines, reducing exposure to international stocks and diversifying more capital into fixed income is one good way to manage risk, in my opinion.
Now, you can't buy these indices directly. But you can invest in ETFs that represent these indices, giving you access to similarly broad diversification. That's where Weiss Capital Management's ETF Strategic Allocation Portfolio comes in.
This core investment strategy, suitable for investors with a moderate risk tolerance, offers the potential for capital appreciation and managed risk by investing in a portfolio of exchange traded funds. It's strategically allocated across three different asset classes — equities, fixed income, and alternatives. When market conditions dictate, it also includes cash. And it spans domestic and international markets.
The Weiss ETF Strategic Allocation Portfolio has three simple goals: Broad diversification … risk management … and greater opportunity for growth during the right market conditions.
I think those are the same goals virtually any investor should have. And as I've tried to show you today, diversifying both globally and across different asset classes may be a great way to start achieving those goals.
Invest $250,000* in Weiss Capital Management's ETF Strategic Allocation Portfolio, if this program is suitable for you, before May 31, 2007, and permanently lock in this introductory management fee of just 1% (one percent). (For investments made after June 1, the fee will be higher.)
If you'd like more information on Weiss Capital Management's ETF Strategic Allocation Portfolio, just call us at 800.814.3045 or click here .
Best wishes,
By Dan Ascani,
Executive Vice President
Weiss Capital Management, Inc.
ETF Strategic Allocation Portfolio Manager
* New or additional investments only
P.S. For our data sources, as well as important disclaimers, please click here .
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Comments
|
John
01 May 07, 22:09 |
can you put ETF's into SIPs ? |
