Markets & Strategies

The Importance of a Diversified Portfolio

Our infographic helps explain why a long-term, diverse portfolio of assets can be critical to wealth management.

May 14, 2019

Why are diversification and asset allocation such important investing strategies? Asset performance can vary greatly from year to year, and diversification—holding a variety of assets that have behaved differently during changing economic or market conditions—may help you during bouts of volatility.

Additional Resources

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Asset Allocation Chart – Index Definitions

Commodities: The Bloomberg Commodity Index is calculated on an excess return basis and reflects commodity futures price movements.

Hedge Funds: The HFRI Fund Weighted Composite Index is a fund-weighted (equal-weighted) index designed to measure the total returns (net of fees) of the approximately 2,000 hedge funds that comprise the Index.

High Yield Fixed Income: The Bloomberg Barclays U.S. Corporate High Yield Bond Index measures the U.S. Dollar-denominated, high-yield, fixed-rate corporate bond market.

Investment Grade Fixed Income: The Bloomberg Barclays U.S. Aggregate Bond Index is a broad-based measure of the investment-grade, U.S. Dollar-denominated, fixed-rate taxable bond market.

Emerging Market Equity: The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure emerging markets’ equity performance.

U.S. Large Cap Equity: The S&P 500 Index is a market capitalization-weighted index, composed of 500 widely held common stocks, that is generally considered representative of the U.S. stock market. Returns assume reinvestment of dividends and capital gain distributions.

Asset Class Risks
Each asset class has its own risk and return characteristics. The level of risk associated with a particular investment or asset class generally correlates with the level of return the investment or asset class might achieve. Stocks may fluctuate in response to general economic and market conditions, the prospects of individual companies, and industry sectors. Foreign investing has additional risks including those associated with currency fluctuation, political and economic instability, and different accounting standards. These risks are heightened in emerging markets. Bonds are subject to interest rate, credit/default, call, liquidity, inflation, and other risks. Bond prices rise as interest rates fall. The commodities markets are considered speculative, carry substantial risks, and have experienced periods of extreme volatility. Investing in a volatile and uncertain commodities market may cause a portfolio to rapidly increase or decrease in value, which may result in greater share price volatility. Hedge funds trade in diverse complex strategies that are affected in different ways and at different times by changing market conditions. Strategies may, at times, be out of market favor for considerable periods with adverse consequences for the investor.

Wells Fargo Investment Institute, Inc. is a registered investment advisor and wholly owned subsidiary of Wells Fargo Bank, N.A., a bank affiliate of Wells Fargo & Company.