When I started to write this message yesterday morning, the markets had already opened and we could see that the selloff was intensifying. I decided to hold off so I could provide data updated through the close of business yesterday, and also to provide some perspective.
The theme of this message? Diversification.
After very strong market performance in 2023 and 2024, we are experiencing a bumpy start to 2025. The major U.S. indices are down across the board as shown below:
S&P 500 Large Cap - down 4.30%
S&P 400 Mid Cap - down 6.18%
S&P 600 Small Cap - down 8.66%
NASDAQ (tech heavy) - down 9.43%
This is where diversification comes into play, and why it is so crucial to long-term investing success. While the U.S. stock market has retreated a bit, look at what has happened with other components of an asset allocated portfolio:
EAFE International Large Cap - up 9.37%
EAFE International Small Cap - up 5.61%
EAFE Emerging Markets - up 3.81%
What about bonds and cash? Those asset classes have been helping as well so far this year:
Bloomberg Aggregate Bond - up 2.62%
U.S. 3 Month Treasury Bill - up 0.76%
All of this leads to diversified portfolios that are flat to just down a smidge this year, and highlights why it is so important to keep eggs in quite a few baskets. And it also is why we keep a healthy cash component in place for those in distribution mode, as we don't want to be forced to sell at an inopportune time.
Dealing with short-term noise and volatility is part of investing, albeit not an enjoyable part. Hopefully the information above helps to add some perspective. Should it raise any questions, please don't hesitate to reach out and ask.
Why diversification is so important.
