Diversification is an essential tool in taking the guesswork out of investing.  Owning a wide variety of investments has many benefits:

However, if investor expectations are anchored to the performance of any one asset class like the S&P 500 index, diversification at times will appear to provide subpar performance.  For example in 2014 , the S&P 500 earned a total return of 13.7%. The S&P 500 is 500 of the largest U.S. stocks and represents only a portion of the stock asset allocation in a globally diversified stock portfolio. 

The S&P 500 does not include small U.S. stocks, international stocks or emerging market stocks. The year over year performance of these various stock asset classes is random as illustrated by clicking on the link to the Periodic Table of Investment Returns.

Owning all of these stock asset classes in a diversified portfolio takes the guesswork out of trying to predict next year 's winner and provides exposure to the return of all of the global stock markets.

The 2014 laggards, international and emerging market stocks, are 2015 YTD leaders.  So far, small cap US stocks which underperformed the S&P 500 in 2014 are outperforming in 2015. This is why we own everything and compare our stock performance to the MSCI World Stock market index.  This is a global stock index that covers large and small stocks in both U.S and overseas markets. 

In conclusion, we believe that owning a globally diversified stock portfolio with exposure to over 40 countries and 12,000 stocks is the best alternative to capture the long-term return associated with capitalism and manage the risk of owning stocks. By assigning a target allocation to each sub-asset class of stocks and regularly rebalancing to the target, we will always be selling one stock asset class high and buying another stock asset class low. The secret to investing - Sell high Buy low.