Broadly Diversified Portfolios
Studies have shown that the majority of determinants of an investor’s return is not what individual security is chosen but which asset classes and sub-classes are chosen. Studies have also shown over the last twenty years, that a traditional domestic portfolio of T-bills, corporate bonds and U.S. large company stocks will have a higher standard deviation and lower returns than a broadly diversified portfolio. The broadly diversified portfolio is constructed by adding small company and international stocks, international bonds and real estate to the mix. Over the long term, the broadly diversified portfolio is strongly favored.
To the traditional portfolio of T-bills, Corporate bonds and U.S. large company stocks
Add small company and international stocks.
Add international bonds.
Add real estate.
Balance off the Portfolio.
