Diversification and asset allocation

Developing your investment strategy

Balancing risk versus returns is the cornerstone of our investment approach. One approach we take to help manage your investment portfolio's performance is to focus on asset classes and investments with the potential to outperform relative to risk.

While risk increases and decreases over time based on several factors, it never disappears. This is why diversification is an important consideration when seeking to mitigate the risks that uncertainty creates.

Depending on your investment goals and risk tolerance, we may diversify your portfolio with a mix of equities, bonds and real assets.

Asset allocation research

Before we look to improve diversification in your investment portfolio, we start asset allocation research with an overall economic assessment.

We consider the common sources of uncertainty and volatility: interest rates, corporate earnings and trade. There is a strong correlation, over time, between major asset prices and economic growth. Our investment team studies:

  • Long-term trends – such as demographics and productivity
  • Cyclical trends – including a current reading of the business and credit cycles
  • Short-term trends – like monetary policy and projected growth in corporate profits
  • Private market and illiquid strategies – possibly providing additional portfolio diversification opportunities
  • Impact investing performance – including social, environmental and governance activities

Creating diversified portfolios

Diagram showing cycle between Asset allocation research Investment selectionand Building portfolios


Our equities research retains a home bias in favor of U.S. equities. We believe higher accounting standards, shareholder friendliness, corporate governance and rule-of-law generally favor domestic companies over international firms. Many U.S. companies are multi-national in nature, which means investments in domestic firms still provide access to overseas markets.


We conduct our research on fixed income – or bonds – for providing current income, diversification against the risk of equities and other types of assets, and protection against deflation. In non-taxable accounts (such as IRAs), we believe in owning traditional domestic government and agency bonds. For both taxable and non-taxable accounts, we also believe in exposure to high-yield bonds which create an opportunity for higher levels of income and returns than traditional bonds typically do.

Real assets

We take the real asset, or nonfinancial, category into account to insulate investors from inflationary risks. Although inflation has generally not been a concern in recent times, it can emerge quickly and have adverse portfolio effects. Inflation-protecting sectors include real estate, various subsectors of the equity market including energy and energy logistics companies, infrastructure, metals, farmland, timber and other portfolio instruments designed to counteract inflation’s corrosive effects.



How diversification may reduce risk

Why is diversification important in investing? Risk never disappears – even in times of economic growth.

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Market news

Read our up-to-date reports on economic events and news from the markets.

Weekly market analysis

What is impact investing?

Learn how your personal values can be meaningfully incorporated into your investment strategy.

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