The Power of Diversification

A Diversified Portfolio* provides investors with a smoother ride over the long term. During sharp market downturns, a diversified portfolio has historically hurt investors less. Conversely, during market highs a diversified portfolio may not return as much as an index due to its balanced approach. The recovery periods are most notable in the charts below from the last two bear markets. The Diversified Portfolio took nearly one-fifth of the time to recover and nearly half the time to recover during the global financial crisis from the S&P 500® Index.

Do you remember what it felt like to be an investor in late 2008?  37 months is a long time to get back on a growth track.

Quick Take: A diversified portfolio provides similar returns to the S&P 500 Index over time but with about two-thirds the volatility. Historically, a diversified portfolio has also taken less time to recover.

Diversified Portfolio and S&P 500® Index Returns

Source: Bloomberg, FactSet, Standard & Poor’s. As of June 30, 2023.  Data date range is January 1999-Dec 2021.  Bear Market defined as peak-to-trough decline of at least 20 percent. Standard Deviation (Std. Dev.): A measure of risk; it calculates the variability of returns by comparing the Fund’s return in each period with the average Fund return across all periods. Past performance is no guarantee of future results.

Diversified Portfolio

Investment Grade Bonds30%
U.S. Large Cap Equity (US LC)20%
U.S. Small Cap Equity (US SC)10%
Foreign Developed Equity (For Dev)10%
Municipals (Munis)5%
U.S. High Yield Bonds (US HYB)5%
International Small Cap (Int SC)5%
Emerging Markets (EM)5%
U.S. Real Estate (REITs)5%
Alternatives (Alts)5%

The indices are unmanaged, are not available for investment, and do not incur expenses. Click here for representative indices and definitions

Investing involves risk, including possible loss of principal. Diversification does not guarantee a profit or protect against a loss in declining markets.

Investments in debt securities are subject to credit and interest rate risk. An increase in interest rates typically causes the value of bonds and other fixed income securities to fall.

Investments in international securities are subject to certain risks of overseas investing including currency fluctuations and changes in political and economic conditions, which could result in significant market fluctuations. These risks are magnified in emerging markets.

Investments in small-capitalization companies are subject to greater price volatility, lower trading volume and less liquidity than investing in larger, more established companies.

Real estate investments are subject to factors such as changing general and local economic, financial, competitive and environmental conditions.

Alternative investments are speculative, subject to high return volatility and involve a high degree of risk including, but not limited to, the risks associated with leverage, derivative instruments such as options and futures, distressed securities, may be illiquid on a long term basis and short sales. There can be no assurance that these types of strategies will achieve their objectives or avoid substantial losses. Alternative investments may also be subject to significant fees and expenses. 

A bear market is a prolonged period in which investment prices are falling or are expected to fall, accompanied by widespread pessimism. A 20% decrease of the S&P 500® Index was used and calculated on a monthly basis.  Bear markets usually occur when the economy is in a recession and unemployment is high, or when inflation is rising quickly.

Market Risk—Market prices of investments held by the Fund may fall rapidly or unpredictably due to a variety of economic or political factors, market conditions, disasters or public health issues, or in response to events that affect particular industries or companies. Investments in emerging markets are subject to risks such as erratic earnings patterns, economic and political instability, changing exchange controls, limitations on repatriation of foreign capital and changes in local governmental attitudes toward private investment, possibly leading to nationalization or confiscation of investor assets.

AMG Distributors, Inc., a member of FINRA/SIPC.

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