In my updates, I’ve discussed the first three components of the L.O.R.D.S. Strategy for selecting and investing in mutual funds: Longevity, Opportunity and Returns. You can review these emails at the bottom of this one. The fourth component is Diversity. Mutual funds are inherently more diversified than owning a single stock, since each fund can own tens to hundreds of stocks. We at B.S.F.S. Investment Advisors diversify further by choosing funds that focus on different industries. While our primary focus is on technology and healthcare, we also spread investments across sectors that include retail, leisure, chemical manufacturing and staple goods. Since 1985, this has provided greater stability than the S&P 500 and Nasdaq Composite Index, with only 4 down years for the L.O.R.D.S. Strategy versus 8 for the average of those two indexes.

So why has this diversity led to greater stability? There have always been supply-shortages and other problems that come up which primarily affect specific industries. Take, for example, what recently happened in the banking industry. Fidelity Select Banking, which is not one of the mutual funds we invest in, is down -20.78% for the last month and -15.91% for the year. The top 4 largest banks in the country, JP Morgan Chase, Bank of America, Citigroup and Wells Fargo are down an average of -14.80% for the last month. This is an industry-specific downturn. All of our funds are positive this year with the weighted L.O.R.D.S. Strategy up 8.14% for the year. While market-wide downturns such as last year will happen, our goal is to minimize risk by diversifying across different industries with strong historical returns and good stability.

As many of us learned from our mothers growing up, don’t put all of your eggs in one basket. And with eggs reaching $6.99 a dozen recently, she was probably right.