The simplest and most honest reason we diversify is that we don’t know which assets will thrive in the future and which will struggle. Diversification acknowledges that no one can consistently and accurately predict the future.
At times, especially when one asset class is significantly outperforming, staying diversified can feel frustrating. The temptation to sell underperforming assets and chase winners is strong. But history—and strong evidence—suggests that diversification remains the smartest strategy.
Evidence #1
Over the past decade (2015–2024), technology stocks have been the clear winners, significantly outpacing other sectors. Energy, on the other hand, was the worst performer. But did you know that from 2000 to 2014, the exact opposite was true? Energy was the best-performing sector , while technology lagged behind.
So, which asset class will lead or lag over the next 10 to 15 years? No one knows. And that’s exactly why we diversify.
Evidence #2
JP Morgan recently conducted an in-depth analysis of the Russell 3000 index (which represents 98% of U.S. stocks) over the past 35 years. Their findings were eye-opening: since 1980, 40% of the stocks in the index suffered catastrophic losses—dropping 70% or more from their highs and never recovering. Meanwhile, the extreme winners—the stocks everyone wishes they had owned from the start—made up just 7% of the index.
How do you ensure you own those rare, high-performing stocks? The only reliable way is through diversification. It allows us to capture those big winners that drive long-term market gains while minimizing the risk of being overly exposed to the big losers.
Final Thoughts
Diversification works exceptionally well over full market cycles. But in the short term, it can sometimes feel underwhelming. That’s why investing is a journey. Our role is to help you stay focused on the long view—so you can make smart, strategic decisions aligned with your long-term goals and aspirations.
Stay relentless,
KJ&J Wealth
©The Behavioral Finance Network
1. A Wealth of Common Sense, The 2024 Sector Quilt, Jan 15, 2025.
2. JPMorgan, The Agony & Ecstasy: The Pros and Cons of Concentrated Positions.