SOLUTIONS

Benefits of Diversification

“Don’t put all your eggs in one basket” is a common expression that most people have heard in their lifetime. It means don’t risk losing everything by putting all your hard work or money into any one place. To practice this in the context of investing means diversification—the strategy of holding more than one type of investment, such as stocks, bonds, or cash, in a portfolio to reduce the risk. In addition, an investor can diversify among their stock holdings by buying a combination of large, small, or international stocks, and among their bond holdings by buying short-term and long-term bonds, government bonds, or high-and low-quality bonds. A diversification strategy reduces risk because stocks, bonds, and cash generally do not react identically in changing economic or market conditions. Diversification does not eliminate the risk of experiencing investment losses; however, by investing in a mix of these investments, investors may be able to insulate their portfolios from major downswings in any one investment. Over the long run, it is common for a more risky investment (such as stocks) to outperform a less risky diversified portfolio of stocks, bonds, and cash. However, one of the main advantages of diversification is reducing risk, not necessarily increasing return. The benefits of diversification become more apparent over a shorter time period, such as the 2007–2009 banking and credit crisis. Investors who had portfolios composed only of stocks suffered large losses, while those who had bonds or cash in their portfolios experienced less severe fluctuations in value.

 

The Asset Allocation Puzzle

Possessing a considerable amount of knowledge about stocks, bonds, and cash is only a small part of the investment planning process. Many investors are under the false notion that the greatest determinant of portfolio performance is the specific investment choices they make. Actually, the biggest decision you will make is how much to allocate to different investment categories. Asset allocation is all about finding the mix of investments that is right for your situation. Goals, time horizon, and risk tolerance are some of the key factors that should be considered when allocating assets. 3 Goals Determining what asset allocation is appropriate depends largely on the goals you seek to achieve. Are you saving for retirement, college education for your children, or a vacation home? Each goal must be considered in creating the appropriate asset mix. 3 Time Horizon Time horizon is the length of time a portfolio will remain invested before withdrawals are made. If your investment horizon is fairly short, you’d likely want a more conservative portfolio—one with returns that do not fluctuate much. If your investment horizon is longer, you could invest more aggressively. 3 Risk Tolerance Everyone has a different emotional reaction to sudden changes in their portfolio value. Some people have trouble sleeping at night, while others are unfazed by fluctuations in the market and can endure

Why Shenouda

 We put investors  first

 We’re independent- minded

 We invest for the long-term

 We’re valuation-driven investors

 We take a fundamental approach

 We strive to minimize costs

 We build portfolios holistically

Not FDIC Insured • No Bank Guarantee • May Lose Value