Diversification is one of the oldest principles in investing. It’s also one of the easiest to forget when one part of the market seems to be doing all the winning.
Over the past decade, technology has dominated investment returns. More recently, enthusiasm around artificial intelligence and the infrastructure required to support it has pushed an enormous amount of capital toward a relatively small group of companies. These may be great businesses with very bright futures. The lesson isn’t that we shouldn’t own them. It’s that we shouldn’t allow any one investment idea to become so important that our financial future depends on it.
Diversification is about more than sectors and geography.
We often think about diversification as owning Canadian, U.S. and international investments, or spreading money across technology, financials, energy and other sectors. But different companies and sectors can still depend on the same underlying idea.
AI and data infrastructure is one example today. History has given us plenty of others: technology and telecom in the late 1990s, financials leading into 2008, or other periods when enthusiasm became concentrated around a particular part of the economy. The idea itself doesn’t necessarily have to be wrong for investors to become too dependent on it.
The hardest time to diversify is when diversification feels like it is holding you back.
A properly diversified portfolio will almost always contain something you wish you owned less of… and something else you wish you owned more of.
That’s not a flaw. That’s diversification doing its job.
When one investment idea is significantly outperforming everything else, it becomes tempting to chase what’s working. Ironically, that’s often when maintaining discipline matters most.
Let the portfolio do its job.
We use diversified portfolio solutions designed around a long-term investment strategy. The principle is simple: maintain diversification, rebalance as markets move and avoid allowing short-term market trends to dictate long-term investment decisions.
That means we don’t need to constantly react to headlines, predict what comes next or chase yesterday’s winners. Instead, we can focus on the decisions we can control how much to save, when to retire, where retirement income should come from, managing taxes and making adjustments as life changes.
Markets will periodically get out of balance. New investment ideas will capture everyone’s attention. Our approach doesn’t require us to predict when that will happen, or what will win next.
Portfolio management should be systematic. Financial planning should be personal.
