Making the most of diversification

Guest blog: Mike Brooks, Head of Diversified Multi-Asset, Aberdeen Asset Managers Limited

The bond bull market has supported returns from traditional balanced portfolios over the past 30 years. But with bond yields at extremely low levels the bull market could well be coming to an end, meaning this tailwind could transform into a headwind in the coming years.

The problem this presents is not insurmountable, however. Diversification can moderate the negative effects of a bond bear market.

Aberdeen-December-17Diversify, but do it effectively

It’s said that you can’t teach an old dog new tricks, and the same applies to many investors who have become set in their ways and closed to new ideas. On the other hand, some are all too ready to jump on the latest bandwagon without performing adequate analysis.

The successful investor must navigate a sensible path between these extremes. In an investment universe that is constantly changing, some of the most fruitful investments are those that initially appear to be “outside the box”.

Adopt a long-term view

Many investors judge a manager based on their recent performance. This can be misleading: Successive academic studies have shown that a focus on short-term performance often leads to investors firing managers with poor recent performance and hiring those with good recent performance. The net effect is a significant escalation of transaction costs – unaccompanied by an improvement in subsequent performance. The lesson? Focusing on short-term performance may be bad for your wealth!

Personally, I find a diversified approach helps keeps most of my biases at bay. It helps me avoid the temptation to bet heavily on my favoured investments, with the subsequent regret when things go wrong. It also gives me a greater ability to think clearly and pick up bargains in times of market stress.

Read more about our multi-asset approach here

The value of investments and the income from them can go down as well as up and you may get back less than the amount invested.

Important information

The above marketing document is strictly for information purposes only and should not be considered as an offer, investment recommendation, or solicitation, to deal in any of the investments or funds mentioned herein and does not constitute investment research as defined under EU Directive 2003/125/EC. Aberdeen Asset Managers Limited (“Aberdeen”) does not warrant the accuracy, adequacy or completeness of the information and materials contained in this document and expressly disclaims liability for errors or omissions in such information and materials.

Any research or analysis used in the preparation of this document has been procured by Aberdeen for its own use and may have been acted on for its own purpose. The results thus obtained are made available only coincidentally and the information is not guaranteed as to its accuracy. Some of the information in this document may contain projections or other forward looking statements regarding future events or future financial performance of countries, markets or companies. These statements are only predictions and actual events or results may differ materially. The reader must make their own assessment of the relevance, accuracy and adequacy of the information contained in this document and make such independent investigations, as they may consider necessary or appropriate for the purpose of such assessment. Any opinion or estimate contained in this document is made on a general basis and is not to be relied on by the reader as advice. Neither Aberdeen nor any of its employees, associated group companies or agents have given any consideration to nor have they or any of them made any investigation of the investment objectives, financial situation or particular need of the reader, any specific person or group of persons. Accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of the reader, any person or group of persons acting on any information, opinion or estimate contained in this document. Aberdeen reserves the right to make changes and corrections to any information in this document at any time, without notice.

Issued by Aberdeen Asset Managers Limited which is authorised and regulated by the Financial Conduct Authority in the United Kingdom.

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