Diversification is the foundation of any sound portfolio. It’s how risk is controlled; a process of balancing potential negatives against potential positives and the tempering of uncertainty. Diversification buffers surprises, both good and bad. The financial media has coined the phrases “Risk-on” and “Risk-off” to identify positive and negative investment climates. “Risk-on” has certainly been an accurate description for the US stock market for 2013 and it appears, at least for now, 2014. Risk has its positive moments. Stocks just finished their best year since 1997. An allocation to bonds in a portfolio has been a way to balance risk as historically bonds have more consistent returns and more consistently positive returns. The last year bonds recorded a negative return was 1999; and now 2013. The stock markets have, as a rule, more consistently varied returns both positive and negative. Newsletter 12-31-2013
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