Don’t give up on portfolio diversification for your clients, presenters said at the Morningstar Investment Conference in Chicago on Thursday.
“Investors seem to equate investing with gambling,” said George Gatch of J.P. Morgan Asset Management. Moreover, they “have begun to doubt the power of diversification.”
Gatch, CEO of J.P. Morgan’s Global Funds Management business, said a litany of major events over the past dozen years have shaken investors’ confidence. Those events range from the tech bubble and the September 11 attacks to the markets meltdown of 2008 to the current Euro debt crisis.
“Quentin Tarentino couldn’t have written a more disturbing script," Gatch told attendees at conference. Still, “individual investors need guidance more than ever.”
His message on diversifying: “In choppy waters, it’s useful to stand in the middle of the boat.”
And don’t give up on equities just because bonds have outperformed stocks over the past decade, he told a luncheon gathering. About 1,850 people are attending the conference, according to Mornginstar.
Likewise, Thomas M. Idzorek, president and chief investment officer of Morningstar’s investment management division, told a separate session of advisers that there’s a risk as too many investors lean too heavily toward bonds.
“Bonds are unlikely to outperform stocks over the next 10 years,” Idzorek says.
Like Gatch, Idzorek preaches diversification. Investors who were well diversified may have still lost money following the 2008 markets fall-out but they were still shielded from incurring even greater losses, he says.
“Diversification may not have provided the cushion people are used to, but it did work,” Idzorek says.
Gatch predicts much more volatility and uncertainty in financial markets in the near future -- all the more reason to spread risks across a portfolio, he says.
Don’t shy away from investments such as emerging markets and high-yield bonds as part of that mix, he adds.
“We need to be much more thoughtful about how we help clients diversify today than we ever have,” Gatch says.
