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Crafted Comfort

05 March 2015

Investors with a spread of diversified assets can shelter themselves from market uncertainties – and sleep easier at night.

The benefits of diversification can easily be taken for granted, but long-term investors should not overlook the well-established advantages – and the comfort – that this fundamental investment tenet brings.

The chart below – sometimes referred to as the ‘patchwork quilt’ – demonstrates how the performance of different asset classes can fluctuate, often dramatically, over time – and how the best performers in any one year can become the worst in the following year, and vice versa.

The past, of course, is not an accurate guide to the future, but what history does show is that investors should not base their strategy on picking last year’s winners. No one can predict which investment will produce the best return each year.

Trusted blanket

However, one principle that investors can rely upon is that a well-diversified portfolio, which invests in a broad variety of different asset classes, can help absorb the effect of all this uncertainty and increase the likelihood of achieving more consistent returns.

For example, emerging market equities performed very strongly in the years directly after the financial crisis, but the performance has fluctuated in more recent years. Likewise, European equities have ebbed and flowed, as has the UK stock market.

“The old adage that investors should not put all their eggs in one basket still rings true,” comments Chris Ralph, Chief Investment Officer for St. James’s Place. “The trick is to ensure that the selection of assets won’t react in the same way to market events or economic changes.”

All-weather cover

The outlook for 2015 and beyond suggests that the divergence of returns from different markets and asset classes will remain a feature of the investment landscape. “The tried-and-tested strategy of diversification remains as sensible in today’s conditions as it has been in the past,” adds Ralph.

And, of course, one of the great advantages of diversification is that it can provide investors with peace of mind. “There is no need to lie awake at night worrying about funds that have gone down in the short term,” reflects Ralph.

The information contained within this report, does not constitute investment advice. It is not intended to state, indicate or imply that current or past results are indicative of future results or expectations. Full advice should be taken to evaluate risks, consequences and suitability of any prospective fund or investment.

The value of an investment with St. James's Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.

To view a larger version of the table, please click on the image above.

Some of the products and investment structures documented within this article will not be available to our clients in Asia. For information on the funds that are available please get in touch.

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