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Getting Back to Basics - Part 2

Getting Back to Basics - Part 2

| January 12, 2021

Diversification, Asset Allocation, and Rebalancing



The practice of spreading money across different investments to reduce risk is known as diversification. By choosing the right group of investments, you can potentially limit your losses and reduce the fluctuation of your investment returns without sacrificing too much potential gain.


Asset Allocation

Asset allocation is important because it can have a significant impact on whether or not you will meet your financial goals. If enough risk is not included in your portfolio, your investments may not earn enough return. On the other side of the coin, if too much risk is included in your portfolio, the money needed for your financial goals may not be there when you need it. For this reason, it is important to meet with your financial team regularly in order to keep us abreast of your short-term and long-term financial goals, as well as to understand your investment style as you grow and learn as an investor. Determining the right asset allocation model for your financial goals can be complicated. Essentially, you are finding a mix of assets that have the greatest probability of meeting your goals while maintaining a level of risk you can live with. 



Rebalancing is bringing your portfolio back to your original allocation mix. This can be necessary because, over time, some of your investments may become out of alignment of your goals. Some investments grow faster than others. By rebalancing, you ensure that your portfolio doesn’t end up overemphasizing one or more categories. You want your portfolio to return to a comfortable level of risk.


Our Philosophy

Sometimes investors can get carried away in the newest, latest, or greatest idea which seems to be taking off in the market. Often, people want to put everything they’ve got in to one idea. This is what we’ll refer to as “mania”. We like to think of diversification as the antidote to mania. We never want you to own enough of any one idea to make a killing in it or be killed by it. Broad diversification is to spread a portfolio among different equity styles, sectors, and geographic theaters which historically will run on different cycles. This practice allows us to somewhat suppress the overall volatility of a portfolio.


You can think of us as the lighthouse of your financial portfolio. Diversification, asset allocation, and regular rebalancing is our way of keeping the light on.


Whether you are just starting out, getting your feet wet, or have become a seasoned investor, our team at Grover Financial Services will work alongside you to create the most effective and efficient financial plans to meet your individual and growing needs. With the many seasons of life, come new and exciting financial goals. Meet with us today to maximize your portfolio.


P.S. If you enjoyed what you've read here and found it beneficial, we encourage you to share it with your friends and family. I firmly believe that an educated investor is more confident, which leads to healthy finances and fewer sleepless nights. 

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. Asset allocation does not ensure a profit or protect against loss. Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss.