Helping You to Manage Risk in a Changing World — Part 2: Asset Allocation and Diversification

Last week, we began our series by looking at the many types of risk investors face—from market swings to concentration risk, inflation, and even our own emotions. This week, we turn to two powerful tools that help manage risk: asset allocation and diversification.

Why Asset Allocation Matters

At its core, asset allocation is the mix of investments across different categories—stocks, bonds, cash, and alternatives. Each asset class behaves differently depending on economic conditions. By spreading investments across them, you can help minimize the likelihood that a downturn in one area will derail your entire plan.

It’s often said that “asset allocation could help determine more of your portfolio’s outcome than individual stock picks.” In other words, how your money is divided can sometimes matters more than where you place each dollar.

The Power of Diversification

Within each asset class, diversification can add another layer of protection potential. For stocks, this may mean holding exposure to different sectors (technology, healthcare, energy, consumer staples) and geographies (U.S., international, emerging markets). For bonds, it may mean balancing government, corporate, and municipal securities.

But here’s the catch: not all diversification is as diversified as it looks. For example, many investors believe that simply holding an index fund spreads their risk broadly. Yet today’s various popular indexes are currently increasingly dominated by just a handful of companies. The S&P 500, for example, has grown increasingly “top-heavy,” with technology and communication giants currently making up an outsized share. That’s concentration risk in disguise.

Putting It Together

True risk management often means looking beyond the surface. Diversification should be intentional, not accidental. Asset allocation should be dynamic, shifting as your goals, time horizon, and the market environment evolve.

Our role at Tanner Wealth is to help clients build portfolios that are both resilient and aligned with their personal goals. We don’t just seek growth—we seek balance. Because in a changing world, managing risk well is what helps growth to endure.

Next week, we’ll dive into a common challenge for long-term investors: the hidden risks of cost basis and legacy stocks. Holding on can be wise—but sometimes, it also carries risks of its own.

By John Tanner, VP | Regional Leader | Wealth AdvisorFI Advisors, Inc.913 N PATTERSON STVALDOSTA, GA 31601 229-232-8211

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