Monday, August 08, 2005

Diversification pays

Particularly on days like today.

Take my Ariel fund and DODFX for example. Ariel is down .11 and DODFX is up .11. It's like that Seinfeld episode where Jerry explains how he always breaks even. Of course, I don't exactly have the same amount in both funds down to the penny. I had started with the same but over the weeks as they went up & down that has changed. Right now my Ariel Fund is down $9 while DODFX is up $17. That's pretty much the story today with all my US vs INTL funds (although my 2 US stocks are up).

Overall I am down about $700 on my brokerage account since the beginning of the month (that works out to -0.93% for anyone keeping track) but when I think what would have happened if I had all my money tied up in US funds I feel a little better. I cannot say what the quantitative advantages are of diversification over a 40 yr period (as opposed to putting all your money in, say, US small value stocks) but it definitely helps if you have low risk tolerance like I do.


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