The Importance of Diversification

February 7, 2012

From year to year the best-performing asset classes can change dramatically. Diversifying investments into different asset classes helps you take advantage of economic cycles, reduce portfolio volatility, and increase the likelihood of consistent returns.

Investment principles

At Wealth Enhancement Group we believe

  • clients need a diversified portfolio to reduce overall risk
  • active investment managers can add value to a portfolio
  • tactical allocation can add value over the long term because economies and markets change
  • investors who want growth should be exposed to broad asset classes, including U.S. markets, international markets and emerging markets

As part of our investment philosophy at Wealth Enhancement Group, we look beyond a single year. We manage for both risk and long-term returns for our clients and we believe that, over time, diversified strategies and portfolios will help you get better returns.


But it’s easy for an investor to look at a single year and focus on the Dow Jones Industrial Average, which tracks 30 large-cap stocks, or on the Standard & Poor’s 500, which tracks 500 mid- and large-cap stocks, and wonder why his/her total portfolio didn’t do as well as those two indices. That’s what happened in 2011, a year marked by market volatility and uncertainty, where investments in other parts of the world performed less well than U.S. investments.

The key is that we use other indices for non-U.S. asset classes, and the active managers we measure performed well within their asset classes.

Looking toward 2012

It’s natural to think that if global economic growth is going to be weak, then investors should avoid stocks. There may, however, still be attractive returns from U.S. stocks, particularly small-caps, and from emerging market equities.

As we move into 2012, we’ll continue to monitor the markets and make timely and appropriate allocation adjustments based on the global economic and political environment.


James Copenhaver, Director of Investment Management



Past performance is no guarantee of future results. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

International and emerging market investing involves special risks such as currency fluctuation and political instability.



Our “One and a Half Cents” on the Fourth Quarter – Part One

January 4, 2011

The stock market posted strong gains during the third quarter after rebounding from the low of the year that occurred near the end of the second quarter. The S&P 500 posted an 11% gain for the quarter. The strong gains during the quarter were far from steady. Volatility was high as the S&P 500 moved up and down within a 10% trading range. Cyclical, Mid-Cap, and European stocks fared the best during the quarter:

The highly cyclical Materials, Industrial, and Consumer Discretionary sectors were among the best performers while the legislation-sensitive Financials and Health Care sectors lagged.

According to data from the U.S. Treasury, purchases of U.S. stocks by foreigners in the third quarter of 2010 were likely strong based on the latest data available for July. On average, demand in recent quarters has only been exceeded in the past by the surge in buying around the market peaks in 2000 and 2007.

However, those foreign investors saw almost none of the strong gains in the U.S. stock market translate into their holdings due to the decline in the value of the dollar. The performance of the dollar-denominated S&P 500, when adjusted for the value of the dollar against major trading partners, was relatively flat for the quarter. If foreign investors fear further declines in the dollar, they may restrict their buying of U.S. stocks.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance reference is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.

The Whole Picture

October 20, 2009

Do you have the diversification you need to keep your portfolio on track even when the stock market falters? The first step is to sit down with your financial advisor to take a closer look at your holdings to make sure your portfolio is well enough diversified to stand the test of time.

Does your investment portfolio have the diversification you need to sail smoothly through the ups and downs of the market? True diversification means more than spreading your assets around to a handful of stocks. It means putting assets into a variety of different types of investments beyond the stock market.

The younger you are the more aggressive you can be. While no strategy assures success or protects against loss, a portfolio heavily weighted in stocks might make sense for investors in their 20s and 30s. But the closer you are to retirement, the more important it is to spread some of your money to other types of investments.

Make sure you have the diversification you need to keep your portfolio on track even when the stock market falters, The first step is to sit down with your financial advisor to take a closer look at your holdings to make sure your portfolio is well enough diversified to stand the test of time.

Time, Not Timing

September 22, 2009

In these days of detailed and ubiquitous reporting on stock markets one of the great dangers facing individual investors is the temptation to time the market. Never forget that time, not timing, is the investor’s greatest ally.

If your biggest concern is when to invest your money, you’re worrying about the wrong thing. Investing a set amount each month IS fine as a saving strategy, but as an investing strategy, it’s flawed. The best time to invest is as soon as you can. If you have created your asset allocation strategy, invest now!

But many people don’t follow this advice, or they try to beat the market by picking the right time to invest.

Vacation Properties and Income – Part 2

September 14, 2009

Another way for retirees to generate income from a vacation home is to sell it. By using the federal capital gains exclusion in conjunction with the sale of your primary residence, you can potentially realize tax-free income. Here’s how it works. The basic capital gains exclusion rules state that you must have owned and used the home as your primary residence for at least two years out of the five-year period ending on the date of the sale. If you are married, the full $500,000 exclusion ($250,000 for single homeowners) is available as long as one or both of you satisfies the ownership test (two years) and you both satisfy the use test (primary residence).

Vacation Properties and Income – Part 1

September 10, 2009

If you have a vacation home, you’re already aware of the enjoyment it provides and the benefits it can offer at tax time. But you may not be aware of how vacation property can be used to generate income in retirement or how it can play into an estate plan. In fact, vacation properties offer retirees a number of different options in managing their finances and estate.
Vacation property may be used to generate income in several different ways. The first, and most obvious, is renting it. The IRS allows you to deduct mortgage interest on your primary residence and one additional property up to a limit of $1 million in combined mortgage debt for mortgages taken out after 1987. Current tax rules also allow you to rent out a second home for up to 14 days per year without having to report the rent as income. If you rent for more than 14 days, the home is considered investment property, and rent must be reported as income. Converting the property to an investment property, however, allows you to deduct rental expenses, such as insurance and utilities, if you have a net profit on the property (deductions are limited if you report a loss). You can still use an income-producing property for personal use while maintaining your tax advantages — but only for the greater of 14 days or 10 percent of the total days it is rented. Maintenance days do not count as personal-use days, but use by in-laws or other part-owners does, even if rent is charged.

Simple Truths

September 8, 2009

As a financial advising firm, one of the simple truths we have learned is that relationships are the single greatest influence on how people use their money and plan for the future. When people talk about their hopes and dreams, they talk about the people they love. Their future, the life they wish to live, is always full of the people most important to them. They don’t talk first about dollars and cents, Dow averages, or bond yields. They talk about a spouse, a parent, a child. When imagining their financial futures, even those without family often focus on others, such as employees, friends, faith communities, and charities.