2nd Quarter 2026 Commentary
Thoughts on Diversification
One of my fondest memories growing up in Hereford, Texas, is my fascination with anything sports, especially, my beloved Dallas Cowboys. In my 2nd grade year at Northwest Elementary, we could buy pencils in the office for 15 cents. The pencils we could buy were unique, in that they were pencils representing the teams in the NFL (National Football League). Obviously, I wanted a Dallas Cowboys pencil, and at some point, I landed one. Once I got the Cowboys pencil, I wasn’t going to dare sharpen and use it. That was better suited for, let’s say, a Cleveland Browns pencil. I quickly understood my goal was to try to get all of the NFL teams, and once I did, I started buying extras of my most favorite pencils in case something happened to them.
I was reminded of this part of my childhood when we had several clients reach out last month to buy some shares in the Initial Public Offering of SpaceX. No one wanted to buy large amounts of SpaceX, which would potentially represent a larger percentage of their portfolio, but instead, just enough to invest in something which seems fun and created excitement about what might be one day.
We often get the question, “How much is too much for one asset in my portfolio?” Our answer is no more than 10-12%. Portfolio diversification helps because different assets often behave differently during market swings. Instead of relying on one investment, you spread risk across multiple return vehicles. This can be done by investing in dozens of different stocks and potentially bonds, maybe even spreading risk through other assets like real estate. Our philosophy has been to use diversification through the use of mutual funds and exchange-traded funds, while using enough of them to also diversify with different asset classes and even in stocks of different types of companies.
Recently, we noticed the benefit of our funds’ diversification performing differently than major indexes during the volatility experienced in March, which was due largely to the conflict between the United States and Iran. You can see the Nasdaq and the S&P 500 were down for the month of March by 4.7% and 5% respectively1. This same chart references the energy sector in the S&P was up 10.4% for the month, along with other sectors which were down less than others. This is what we like about diversifying across a variety of stocks instead of simply what seems to be ‘doing best’ lately. None of us likes being down at all on a given day, but it happens. If we can manage the downside, we have less to make up on the recovery side and then get into growth mode sooner. When one vehicle struggles, another may hold up or even rise.
Diversification reduces risk but does not eliminate it. During major market panics, many assets can decline together. The goal is usually:
- Smaller drawdowns
- Smoother returns
- Better odds of staying invested through market cycles
For many long-term investors, a mix of growth assets (NASDAQ), defensive assets (minimum-volatility ETFs) and alternative return sources (such as private companies like SpaceX, real estate or bonds) often produces a more resilient portfolio than holding only one asset class.
Please let us know if you would like to set up a time to discuss more fully how we have set up your portfolio, and how we are using a number of diversified funds to meet the goals you have set for the long term.
1 https://www.nasdaq.com/articles/march-2026-review-and-outlook
Please Note
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