The New Rules of Diversification

Episode 438: The New Rules of Diversification

Addressing distress in one's portfolio through asset allocation

Show notes

The fog of war continues in Ukraine with the entire world watching. The path to some immediate resolution has mostly closed, and expectations are for a complicated and extended process. Prayers are for minimal bloodshed and certainly for a limited scope to where the conflict goes. But few analysts are able to formulate a scenario where this ends well.

The dollar is rallying. The Euro is collapsing. Oil is skyrocketing. U.S. equity markets are experiencing significant gyrations up and down day by day. I believe those five sentences summarize the five most important themes in financial markets right now (the collapse of the ruble and the Russian equity markets does not make the list, because who cares).

I could certainly provide commentary today on the history of how markets have responded to various geopolitical distresses over the years, and maybe that will be needed in the weeks to come. But I believe longtime readers of Dividend Cafe know that I believe a properly constructed asset allocation is supposed to account for the inevitability of, well, distress. It could be geopolitical, or medical, or monetary, or economic, but distress is not new – only the specific reasons for the various particular distresses that come at different times. Today we are going to look at the reality of addressing distress in one’s portfolio through asset allocation – what it means in the current moment, how some elements of this have changed, and why it hasn’t stopped mattering.

I wouldn’t say this is a specifically Ukraine-focused Dividend Cafe, but I would say that it may feel like it if it is understood correctly. We hold principles for the purpose of applying them during times of distress. The Ukraine event is a time of distress. Today’s Dividend Cafe is about the principles that exist before, during, and after such.

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David Bahnsen

David Bahnsen

David is the Founder, Managing Partner, and the Chief Investment Officer of The Bahnsen Group.

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