Diversification
Purpose Wealth defines
investing as taking compensated risk and avoiding speculative
risk. In terms of economic theory, speculative risk
is uncompensated and can be reduced through broad diversification.
By removing uncompensated risk, a diversified
portfolio is better-positioned to deliver superior long-term
compounded returns.
The primary components
of a diversified portfolio should have projected earnings,
dividends or interest to generate expected returns.
Including non-correlated components without an expected
return may help to reduce risk, but diversification
is about avoiding uncompensated risk, not about avoiding
all risk.
Sample
Balanced Allocations
Market Portfolio
Moderate Size/Value
Tilt - Tax-Deferred Accounts
Moderate Size/Value
Tilt - Taxable/Tax-Deferred Mix
Moderately Aggressive
Size/Value Tilt - Tax Deferred Accounts
Moderately Aggressive
Size/Value Tilt - Taxable/Tax-Deferred Mix
Aggressive Size/Value
Tilt
The above allocations
are simply examples. Purpose Wealth does not offer "model"
portfolios. Instead, portfolios are designed around
a client's unique cirmumstance.
Next: Rebalancing
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