Individual Investors

Insights

Follow the Leader?

04/21/2015

Diversification is the smartest portfolio tool that we have—but it's not perfect.
Because we don't know what's going to outperform, we sensibly spread our investments across different strategies and styles. The catch? There's always going to be a part of your nest egg that is lagging.

The data show that the gap between top and bottom can be enormous, sometimes more than 50%! This triggers our behavioral urge to sell "losers" even though underperformance comes and goes. Resist this urge, if possible, and think about the whole basket, not the individual eggs.

Ultimately, the math of diversification makes sense. It's the psychology of diversification that's troubling.

Ultimately, the math of diversification of makes sense. It’s the psychology of diversification that’s troubling

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*As of 3/31/15.
Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown. The above table is presented for informational purposes only and is not meant to represent the performance of any Virtus product.
There is no guarantee that a diversified portfolio will outperform a non-diversified portfolio, or that diversification among different asset classes reduces risk.
Not all products or marketing materials are available at all firms.
Not insured by FDIC/NCUSIF or any federal government agency. No bank guarantee. Not a deposit. May lose value.
Distributed by VP Distributors, LLC, member FINRA and subsidiary of Virtus Investment Partners, Inc.

Emerging Markets is represented by the MSCI Emerging Markets Index (net): A free float-adjusted market capitalization-weighted index designed to measure equity market performance in the global emerging markets. The index is calculated on a total return basis with net dividends reinvested.

International is represented by the MSCI EAFE® (Morgan Stanley Capital International Europe, Australasia, Far East) Index: A free float-adjusted market capitalization index that measures developed foreign market equity performance, excluding the U.S. and Canada. The index is calculated on a total return basis with net dividends reinvested.

Fixed Income is represented by Barclays Capital U.S. Aggregate Index: Measures the U.S. investment grade fixed rate bond market.

Large-Cap Growth is represented by the Russell 1000® Growth Index: A market capitalization-weighted index of growth-oriented stocks of the 1,000 largest companies in the Russell Universe, which comprises the 3,000 largest U.S. companies.

Large-Cap Value is represented by the Russell 1000® Value Index: A market capitalization-weighted index of value-oriented stocks of the 1,000 largest companies in the Russell Universe, which comprises the 3,000 largest U.S. companies.

Mid-Cap Growth is represented by the Russell Midcap® Growth Index: A market capitalization-weighted index of medium-capitalization, growth-oriented stocks of U.S. companies.

Mid-Cap Value is represented by the Russell Midcap® Value Index: A market capitalization-weighted index of medium-capitalization, value-oriented stocks of U.S. companies.

REITs are represented by the FTSE NAREIT Equity REITs Index: A free-float market capitalization-weighted index which measures equity tax-qualified REITs that meet minimum size and liquidity criteria and are listed on the New York Stock Exchange, the American Stock Exchange and the NASDAQ National Market System. The index is calculated on a total return basis with dividends reinvested.

S&P 500® is a free-float market capitalization-weighted index of 500 of the largest U.S. companies. The index is calculated on a total return basis with dividends reinvested.

Small-Cap Growth is represented by the Russell 2000® Growth Index: A market capitalization-weighted index of growth-oriented stocks of the smallest 2,000 companies in the Russell Universe, which comprises the 3,000 largest U.S. companies.

Small-Cap Value is represented by the Russell 2000® Value Index: A market capitalization-weighted index of value-oriented stocks of the smallest 2,000 companies in the Russell Universe, which comprises the 3,000 largest U.S. companies.

The indexes are unmanaged, their returns do not reflect any fees, expenses, or sales charges, and they are not available for direct investment.

Past performance is not a guarantee of future results.

Virtus Investment Partners provides this communication as a matter of general information. The opinions stated herein are those of the author and not necessarily the opinions of Virtus, its affiliates or its subadvisers. Portfolio managers at Virtus make investment decisions in accordance with specific client guidelines and restrictions. As a result, client accounts may differ in strategy and composition from the information presented herein. Any facts and statistics quoted are from sources believed to be reliable, but they may be incomplete or condensed and we do not guarantee their accuracy. This communication is not an offer or solicitation to purchase or sell any security, and it is not a research report. Individuals should consult with a qualified financial professional before making any investment decisions.