By Ted Stricker, CFP®
It’s no secret that financial markets can be volatile and unsettling, even to the most risk-tolerant investor. So far in 2025, investors of all stripes have had their mettle tested as markets have reacted significantly to the ever-changing news, be it tariff policy changes, tax law status, and even a downgrade of U.S. creditworthiness.
At Bernath + Rosenberg, we’ve seen many such periods and it’s our belief that a well-designed and diversified portfolio can be the key to long-term investment success, despite the white-knuckle anxiety that may result from roller-coaster swings in the market.
What Is Diversification and How Does It Help?
Diversification is allocating your portfolio among a wide variety of asset classes, holdings, sectors, and even geographic areas, effectively spreading the risk of any of these having a significantly detrimental effect on the overall portfolio. In short, by diversifying, you’re not overly exposed to any single investment (in case that investment doesn’t work out well).
Proper diversification can also mitigate overall portfolio value decline during adverse market periods. A well-designed portfolio may have so-called “non-correlated” asset classes where if one asset class is in decline, another could remain stable or possibly increase in value. Stocks, bonds, and cash/money market investments are a classic example. Often (but not always) when stocks decline, bonds may rise in value, since investors may be moving their money out of stocks and into bonds during uncertain periods. This offsetting effect may help a diversified portfolio retain a greater part of its value when the market is volatile.
Taking the Emotion Out of Decision-Making
Another benefit of diversification is the role it plays in reducing the tendency to emotionally react to changing market conditions, particularly on the downside. Everybody “knows” not to panic when markets decline, but as emotional human beings, some of us react anyway, to the potential detriment of long-term objectives.
With diversification and its tendency to dampen swings in portfolio value and provide a measure of stability, an investor may be less tempted to “do something” in a rash, emotion-laden response to an unexpected dip in the market. This can also work on the positive side, when markets are advancing. Sticking to one’s “diversification knitting” and not committing too much to an asset class (such as riskier small-cap growth stocks) during a hot market can save an investor from euphoric investment decisions that could hurt later on when markets reverse.
A diversified portfolio also creates a balanced approach toward investing. Different asset classes and subclasses have a variety of risk and reward characteristics that, properly allocated and adjusted to suit the investor’s objectives and risk tolerance, can balance each other and keep the portfolio growth moving forward, even against economic and market headwinds. The investor may be therefore less likely to abandon a disciplined strategy.
In addition, not only does diversification guard against having too much in a poor-performing investment, having exposure to a wide selection of investments provides opportunity to benefit from unexpected growth in any of these areas. As an example, U.S. markets may be constrained in a particular year, but foreign markets could experience sudden growth as a result. Without diversifying and including international market exposure, that growth opportunity may be lost.
Base Hits Over Swings for the Fence: Consistency Works
With the tendency to reduce extreme portfolio volatility, another feature of diversification is the smoothing effect of returns over time. By reducing the amount of “high-highs” and “low-lows” in a series of annual returns, an investor may find their long-term results are more favorable to their overall financial planning and progression toward their objectives. This relative consistency in returns may contribute to long-term results, since a large loss of portfolio value in a single bad year may take several years to recoup to get back on track.
Bottom Line: Preserving Your Portfolio Through Diversification
No investment strategy is entirely risk-free and market volatility is an inevitable aspect of investing in the financial markets. The negative impact of doing so, however, can be mitigated with the right approach and diversification can provide a simple, but strong foundation.
Along with regular reviews and rebalancing techniques, a diversified portfolio offers many benefits to help reduce overall risk and achieve long-term objectives to preserve and grow your wealth over time.
If You Have Questions, Speak With Us
Wealth management is a core service we offer at Bernath + Rosenberg, and we’re here to help!
Our experienced team of Certified Public Accountants and CERTIFIED FINANCIAL PLANNER® professionals stays current with the latest in tax laws and planning strategies to help you pursue a rewarding and comfortable life, according to your unique and special objectives. By coordinating your investment management and planning with your long-term goals, we can assist you in avoiding unpleasant market surprises that could disrupt your retirement or legacy objectives.
To get started and make the most of the wealth you’ve accumulated, schedule a meeting by calling (212) 221-1140 or email tstricker@brwealth.com.
About Ted
Ted Stricker is a partner and financial advisor at Bernath + Rosenberg, a full-service accounting, tax, and wealth management firm with offices in Monsey, NY, Lakewood, NJ, Cedarhurst, NY, and Miami Beach, FL. The firm demonstrates a personalized approach to custom-tailored solutions and an unwavering commitment to client service. With over 26 years of experience in the financial services industry, Ted manages the firm’s wealth management team, and specializes in designing financial plans for business owners and affluent families. Since joining the team in 2015, he provides practical and sound advice, combining innovative approaches and solutions that reflect clients’ personality, lifestyle, and goals.
Professionals associated with Bernath & Rosenberg P.C. may be either (1) registered representatives with, and securities and advisory services offered through LPL Financial, Member FINRA/SIPC, a registered investment advisor; or (2) solely tax professionals of Bernath & Rosenberg P.C., and not affiliated with LPL Financial. Tax/accounting/CPA-related services offered through Bernath & Rosenberg P.C. is a separate legal entity and not affiliated with LPL Financial. LPL Financial does not offer tax advice or tax/accounting/CPA-related services.
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Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise. Bonds are subject to availability, change in price, call features and credit risk.
Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
