Finance Style diversification For those who invest in pooled assets – mutual funds, exchangetraded funds (ETFs) and similar investments – it’s also possible to diversify according to which approach or strategy the fund manager applies to the selection of securities within the larger fund. By blending multiple styles into the portfolio, you can smooth out overall volatility, while seizing opportunities in different market conditions. The most common styles include: Growth - this strategy focuses on securities expected to grow at a faster rate than the market average – very common with hightech companies or those operating in other innovative fields. Low interest rates and a generally bullish outlook for most world economies has led to this strategy performing exceptionally well over the past decade or so. Value - this strategy focuses on securities that are undervalued, under-appreciated, or unloved by the market and are, therefore, mis-priced. Managers who follow this style aim to buy such securities at a low price, and then wait for a “catalyst” that will lead to the market realizing the true value that was previously hidden or ignored. Generally, the value style often performs best when the market starts to recover after a downturn, or when inflation and interest rates rise. Income investing - as its name suggests, this strategy prioritizes investments that provide stable or growing dividends or interest payments. The ongoing payments naturally lead to securities that exhibit financial stability in times of volatility, making it an ideal diversification strategy for investors with a more conservative bent. Momentum - think about this style as a “buy high, sell higher” strategy, emphasizing stocks and other securities that are already showing strong performance; the assumption being that positive performance will continue, at least in the short to medium terms. A strategy that can lead to outsized returns in environments with clear trends. Geographic diversification While geographic markets have become increasingly interdependent over the past few decades, investing internationally can still reduce risk by spreading exposure across economies that don’t always move in tandem – something to keep in mind as the international trade agreements which tie economies together seem to be unravelling. United States - the world’s largest market, and home to many of the world’s largest, most innovative and most well-capitalized companies. The U.S. is also home to the world’s most liquid and most secure government bond market. Although the recent political and economic turmoil has had an outsized effect on U.S.-domiciled assets, they remain a core holding for most retirees. Canada - For Canadian retirees, homegrown equities, bonds and, especially, real estate remain important components of a well-balanced portfolio. While the size of Canada’s market is relatively small compared to others, it gives Canadian investors the ability to invest in several world-renowned businesses (in the financial sector, oil and gas, and mining, in particular) without worrying about currency fluctuations – a key benefit in times of international turmoil. Europe - In recent times, Europe has become overshadowed by the U.S. and Asia. But it remains home to some of the most well-known companies in the world. And as U.S. policy becomes more inward-looking, European economies are changing by expanding trade, reinvesting in infrastructure and loosening policies that restricted economic growth. All good news for investors. Asia - home to many of the most dynamic and fastest-growing economies on the planet. Increasingly, companies in Japan, China, South Korea, Taiwan and their neighbours are also some of the world’s most innovative, with technologies and services sold around the world. Growth-oriented investors should definitely reserve a slice of their portfolio for this region. Emerging markets - these are the “up and comers” of the investment world: countries that are transforming from lower-income economies to more industrialized, high-growth economies. Just the thing for patient, growth-oriented investors. Frontier markets - beyond the emerging markets are the lesser-known frontier markets: smaller, lower-income countries that are only beginning to open up their economies to international investors: think sub-Saharan Africa, much of South America, the “stans” of Central Asia and the like. Investing in such markets gives investors the chance to get in on the “ground floor” of truly explosive growth – albeit with much greater volatility than other geographic regions. 30 | www.snowbirds.org
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