Markets have been reacting in recent weeks to a number of political and economic developments, from tariffs to souring consumer sentiment, which has incited considerable volatility. It seems that one day markets are down 1% or more only to be up 1% or more the following day, leaving us to feel like we’re being taken for a ride.
There’s no question that domestic stock markets have been volatile in recent weeks, and you may be inclined to peek at your account statements from behind your fingers, but many may be surprised to see how well their portfolios are holding up thanks, primarily, to diversification. It can be difficult to understand that just by watching the daily news, however, since broadcasters tend to only focus on the S&P 500, Dow and the Nasdaq (setting aside their propensity to sensationalize to attract and retain viewers):
(Credit: Yahoo Finance as of March 18, 2025)
The above three indices only include domestic mega-cap companies and are pretty narrow in their scope (the Dow, for example, only includes 30 companies). Diversified portfolios should include other asset classes as well, like bonds and foreign stocks, which have far outperformed domestic stocks year-to-date.
Here’s a look at other major asset classes and their year-to-date returns (as of March 17, 2025):
With all the negative headlines about slowing economic growth, the widespread impact of a trade war and potential recession on the horizon, would you have guessed that foreign developed stocks are up almost 10% since the beginning of the year?
Examples of the benefits of diversification aren’t always so clearcut, and the variables that impact the returns of various asset classes around the world are constantly shifting. But with financial markets on rocky ground, diversification has once again demonstrated its importance as a fundamental pillar of long-term investing success.
The views expressed represent an assessment of market conditions at a specific point in time, are opinions only and should not be relied upon as investment advice regarding investments, sectors or markets in general.
The above statistics and/or commentary have been obtained from sources we believe are reliable, but we cannot guarantee their accuracy or completeness. Past performance is no guarantee of future results.
Specific securities discussed herein are illustrations and do not represent securities purchased, sold or recommended for client accounts. Such information does not constitute, and should not be construed as, a recommendation to buy or sell specific securities.
This is not a complete analysis of every material fact regarding any company, industry, or economic condition. Due to shifting market conditions, all expressions of opinion are subject to change without notice. Talk to your financial advisor before acting on information in this document.