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Randy Siller Weighs in on "Fake" Diversification Strategies
The concept of "diversification" is popular in financial planning and investment circles—but according to a recent Forbes article, the focus on diversification is somewhat misguided. Randy Siller agrees.
By: PR Newswire
Jan. 21, 2013 06:00 AM
NEW YORK, Jan. 21, 2013 /PRNewswire-iReach/ -- Anyone who has ever worked with a financial advisor to create an effective investment portfolio has likely heard all about the concept of diversification; the drive to diversify a portfolio is a common one in many financial planning circles, but, according to a recent article in Forbes, this emphasis is misguided. Forbes claims that many investors fall prey to "fake" diversification strategies—approaches that simply do not work, for a variety of reasons. The article has won the attention of financial services veteran Randy Siller, CPA and Certified Investment Management Analyst. Siller has responded to the Forbes article with his own statement to the press, weighing in on the issue of diversification.
"Diversification is an overused and often misunderstood word in the financial world," says Randy Siller, in his press statement. "A well diversified portfolio reduces volatility through the use of various asset classes. Asset classes are often defined as large cap U.S. stocks (think S&P 500), foreign stocks, Intermediate Term Bonds, Treasury Inflation Protected Securities, alternative investments, and so forth."
Siller continues by citing evidence to suggest that asset allocation is the true secret to a strong, diversified portfolio. "In 1991, Brinson, Hood & Beebower published a study in the Financial Analysts Journal that showed that over 90 percent of portfolio performance is based on Asset Allocation, with the remaining 10 percent based on securities selection, timing and other factors. What this means is that getting the right asset class allocation is much more important than picking the right stocks and bonds."
Siller continues by citing the conventional wisdom that diversification is all about reducing volatility. "In 2008 the S&P 500 was down 37 percent. If you picked the very best stocks in that asset class how much money could you have made that year? You couldn't have. So the very best stock selection wouldn't have helped you. During the same year bonds were up 5.78 percent, and another asset class known as Managed Futures was up 14.09 percent."
"Let us take this a step further," continues Randy Siller. "In 2008 the global stock market (based on the MSCI World Index) was down 40.71 percent. On the other hand a portfolio that was diversified 25 percent in bonds, 10 percent in Treasury Inflationary Securities, 10 percent in alternatives (based on HFRI Equity Hedge), 15 percent in Managed Futures (based on Barclay's CTA Index), and 40 percent in Global Equities was down 15.63 percent."
According to Randy Siller, the implication is clear. "Nobody wants to lose money, but a portfolio can recover a lot quicker from a loss of 16 percent than it can from a loss of 41 percent."
The bottom line for Siller is that asset allocation is what truly matters for investors seeking to defend their investments against market tumult. "To determine how well your portfolio is diversified and how well it will protect you in volatile times, take a hard look at your asset allocation to determine how well you are protected," he concludes.
Randy Siller is a veteran of the financial services, and a founding partner of the firm Siller & Cohen. For more than two decades, the firm has offered financial planning and legal services to families, individuals, and businesses across the country. Randy Siller has been cited in numerous publications, including Time and Fortune.
Randy Siller is a registered representative of Lincoln Financial Advisors Corp. Securities and advisory services offered through Lincoln Financial Advisors Corp., a broker/dealer (Member SIPC) and registered investment advisor. Insurance offered through Lincoln affiliates and other fine companies. Siller and Cohen is not an affiliate of Lincoln Financial Advisors Corp does not provide legal or tax advice. CRN 2013301-2076068
Media Contact: Steve McFaddin, Mark-PR.com, (678) 685-8304, firstname.lastname@example.org
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SOURCE Randy Siller
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