Most investors get diversification 100% wrong. They think diversifying your portfolio is as simple as “set it and forget it.”
For example, allocating among stocks, bonds, gold, cash and real estate, and rarely if ever adjusting those allocations or the assets selected within.
That’s fine if you want mediocre returns. But the book The Ivy Portfolio shows how large endowments including Harvard and Yale have beaten the market over the long term. And they’ve achieved these results with healthy diversification and low volatility.
Click here to join me tomorrow for a training event. I’ll show you how to diversify your portfolio with one simple ETF investment.
Now, Harvard and Yale operate some of the biggest investment funds in the world, dwarfing many hedge funds.
As I’ll discuss tomorrow, the key to successful diversification is not blindly allocating into every asset class all the time. Instead, it’s about finding the sectors of the market that are rising – and being diversified in stocks in those sectors.
For example, let’s look at the well-known biotechnology ETF, the iShares Nasdaq Biotechnology ETF (NASDAQ: IBB).
Biotech investors know that it’s a very volatile sector. It’s commonplace to see individual stocks move 10% daily. 50% declines in one day are not out of the ordinary.
IBB — and the Biotech sector — was a loser in 2016. But in the start of 2017, it is one of the biggest winners. The ETF is up over 7% year-to-date, and is currently on pace for an astounding 242% gain on an annualized basis.
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However, if you had bought an individual Biotech stock, you could very likely be underperforming IBB, or even be down on the year.
Four of the top five largest holdings in IBB are underperforming the ETF itself in 2017, and one of those is even losing money. Regeneron Pharmaceuticals (NYSE: REGN) is down over 3% YTD.
Stock picking among a group like this is a very tricky game, which can create risk and volatility that isn’t seen in an ETF basket.
The effect of an individual stock on the overall IBB ETF will be greatly lessened, as it holds over 150 different biotechnology stocks.
I’ve created an actively managed ETF Portfolio based on trend momentum strength and relative outperformance. And we went live on it last month after quite a bit of testing.
So far this basket, which currently contains 3 ETF names that have been added periodically, is up 2.1%, compared to the S&P 500 ETF (NYSE: SPY), which is up 0.8%.
That is an annualized return of approximately 25.2%, compared to 9.6% for the broad market.
Click here right now to discover how to select and trade the best ETFs at the right time. My live training will teach you everything you need to know to start trading ETFs in 2017.
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