Broker Check

Diversification: The Foundation
of a Resilient Portfolio


Diversification is the most powerful tool in investing—it helps reduce risk, smooth returns,
and improve long-term performance. By spreading investments across different asset classes,
sectors, geographies, and company sizes, retirees can protect their portfolios from market
shocks while capturing growth opportunities.

Why Diversification Matters

Reduces Volatility

No single asset drives your entire portfolio.

Protects Against Downside Risk

Bonds often rise when stocks fall.

Enhances Long-Term Returns

Low correlation among assets improves risk-adjusted returns.

Global Exposure Reduces Home-Country Bias

Reduces concentration risk.

Data Point:
From 2000–2022, a globally diversified portfolio (60% U.S./international stocks, 40% bonds) returned 6.2% annualized with 35% lower volatility than a 100% U.S. stock portfolio (Morningstar).

Stock Diversification: By Market Capitalization and Geography

Category

Purpose

Example ETFs

Data Point

Large-Cap U.S. Stocks

Core equity exposure, stability, liquidity

S&P 500 ETFs

~9–10% annualized return since 1926 (Ibbotson)

Mid-Cap Stocks

Growth potential, moderate risk

Russell Mid Cap ETFs

2000–2022: 10–11% annualized return

Small-Cap Stocks

High growth potential, higher risk

Russell 2000 ETFs

2000–2022: 11–12% annualized

International Developed Stocks

Geographic diversification

MSCI EAFE ETFs

2000–2022: 5–7% annualized

Emerging Market Stocks

High growth, higher volatility

MSCI Emerging Markets ETFs

2000–2022: 7–10% annualized

Category

Large-Cap U.S. Stocks

Purpose

Core equity exposure, stability, liquidity

Example ETFs

S&P 500 ETFs

Data Point

~9–10% annualized return since 1926 (Ibbotson)

Category

Mid-Cap Stocks

Purpose

Growth potential, moderate risk

Example ETFs

Russell Mid Cap ETFs

Data Point

2000–2022: 10–11% annualized return

Category

Small-Cap Stocks

Purpose

High growth potential, higher risk

Example ETFs

Russell 2000 ETFs

Data Point

2000–2022: 11–12% annualized

Category

International Developed Stocks

Purpose

Geographic diversification

Example ETFs

MSCI EAFE ETFs

Data Point

2000–2022: 5–7% annualized

Category

Emerging Market Stocks

Purpose

High growth, higher volatility

Example ETFs

MSCI Emerging Markets ETFs

Data Point

2000–2022: 7–10% annualized

Bond Diversification: Stability and Income

Bond Type

Purpose

Example ETFs

Data Point

U.S. Treasuries

Capital preservation, low risk

Treasury ETFs

Historically lowest default risk, stable returns during equity downturns

Investment-Grade Corporate Bonds

Income and moderate risk

Corporate bond ETFs

4–5% annualized yield

High-Yield Bonds

Enhance income

High-yield ETFs

6–8% annualized yield, higher risk and volatility

Global Bonds

Currency and regional diversification

International bond ETFs

Reduces home-country risk, moderate correlation to U.S. bonds

Mortgage-Backed & Securitized Bonds

Income and inflation protection

MBS ETFs

Provides monthly cash flow, sensitive to interest rate changes

Bond Type

U.S. Treasuries

Purpose

Capital preservation, low risk

Example ETFs

Treasury ETFs

Data Point

Historically lowest default risk, stable returns during equity downturns

Bond Type

Investment-Grade Corporate Bonds

Purpose

Income and moderate risk

Example ETFs

Corporate bond ETFs

Data Point

4–5% annualized yield

Bond Type

High-Yield Bonds

Purpose

Enhance income

Example ETFs

High-yield ETFs

Data Point

6–8% annualized yield, higher risk and volatility

Bond Type

Global Bonds

Purpose

Currency and regional diversification

Example ETFs

International bond ETFs

Data Point

Reduces home-country risk, moderate correlation to U.S. bonds

Bond Type

Mortgage-Backed & Securitized Bonds

Purpose

Income and inflation protection

Example ETFs

MBS ETFs

Data Point

Provides monthly cash flow, sensitive to interest rate changes

Global and Multi-Sector Benefits

Global and Multi-Sector Benefits

  • Spreading across countries, sectors, and company sizes reduces dependence on any single economic event.
  • Multi-sector and global portfolios outperform undiversified portfolios over the long term while reducing drawdowns.

Data Point:

From 2000–2022, a globally diversified 60/40 portfolio had a maximum drawdown of -25% versus -50% for a 100% U.S. large-cap stock portfolio.

Client Takeaway

For retirees, diversification is crucial:

  • Protects capital and income during market downturns
  • Provides access to global growth opportunities
  • Smooths portfolio volatility while improving risk-adjusted returns
  • Ensures a resilient portfolio across market cycles

By combining large-cap U.S. stocks and bonds as the foundation, with mid, small, and international equities and multi-sector bonds, we build a portfolio that is both growth-oriented and defensive, aligned with retirement needs.