Managing Risk and Return Through Diversification

Experience has shown long-term investors are more likely to achieve consistent results and grow their assets over time if they hold a diversified portfolio.

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2015 was a year to forget with most asset classes posting flat to negative returns. Developed international equities had the best performance, however, the strong US dollar weighed on these returns for US-based investors.

  • Because most assets experienced flat to negative returns, you may be disappointed if your overall return was less than optimal.
  • Investing only in the top-performing asset class each year would likely generate the best returns, however, such a feat is extremely difficult, if not impossible, to do consistently, ever for seasoned investors.
  • Because forecasting market performance is challenging, we believe it’s important to hold a diversified portfolio, even though it will usually produce a lower return than if you were able to pick up the best performer in any given year.
  • Among its potential benefits, diversification is likely to generate more consistent returns. As a result, over the long term, a diversified portfolio may increase more in value than one that produces more volatile returns, which is the likely result of being concentrated in a single asset class. Of course, diversification does not guarantee a profit or protect against losses in a declining market.
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Wells Fargo Investment Institute, Inc. is a registered investment adviser and wholly-owned subsidiary of Wells Fargo & Company and provides investment advice to Wells Fargo Bank, N.A., Wells Fargo Advisors, and other Wells Fargo affiliates. Wells Fargo Bank, N.A. is a bank affiliate of Wells Fargo & Company.

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