Spreading it around.
Many investors believe they’re playing it safe by holding a variety of U.S. stocks and mutual funds—but that surface-level mix may not offer the protection they think. We discuss the real meaning of diversification with Dave Ragan, president of Grunden Financial Advisory, based in Denton, Texas, and how a well-structured portfolio can help manage risk to build a resilient financial future.
Light: A lot of investors think they’re diversified just because they own a mix of stocks and mutual funds. Is that sufficient?
Ragan: Not quite. On the surface, holding a range of U.S. stocks, bonds or sector-specific funds can feel like a smart strategy. But real diversification goes deeper than variety for its own sake. It’s not just about the number of investments, it’s about where and what those investments are. If your entire portfolio is concentrated in one market or a few industries, you’re likely more exposed to risk than you think.
Light: Can you talk about the concept of “home bias”? It seems to play a big role here.
Ragan: Home bias is the tendency to invest in companies that feel familiar—they can be companies that are headquartered in your country or that you interact with regularly. For many Americans, that means big U.S. names. But when your portfolio leans too heavily on just one country, you’re making a concentrated bet. The U.S. makes up roughly about 60% of the global market, which means investors focused only on domestic holdings are missing out on nearly half of the world’s opportunities.
Light: What does meaningful diversification look like in practice?
Ragan: Think of it like a three-legged stool. One leg might be U.S. equities, another international developed markets like Europe or Japan, and the third, emerging markets like India or Brazil. If one leg is shaky, the others offer support. But diversification doesn’t stop with geography. It includes different asset classes too such as stocks, bonds, even real estate so you’re not tied to the same economic drivers across the board.
Light: Beyond providing stability, can global diversification boost performance?
Ragan: It can. Different regions grow at different rates, and by spreading your investments globally, you’re positioned to benefit from a broader range of outcomes. In fact, when we compared the S&P 500 to a global benchmark like the MSCI All Country World Index IMI, there have been entire decades when international markets delivered stronger returns.
Light: We’ve seen some market volatility recently. What role does diversification play during times of market volatility?
Ragan: Volatility is part of investing and there’s no getting around it. But diversified portfolios tend to weather those storms better. Concentrated portfolios can swing more sharply. When you’re diversified, especially globally, the ride tends to be smoother. That helps investors stay the course, which is critical. Those who panic and sell during downturns often miss the rebound.
Light: Are there specific principles that can be followed when building diversified portfolios?
Ragan: Yes, several. First, diversify across markets in U.S., international developed and emerging. Second, think beyond just stocks. Bonds and other assets help balance volatility. Third, stay consistent and focus on the long term. The aim isn’t to try to chase short-term leaders but to watch steady growth. And finally, rebalance. Markets shift, and portfolios can drift out of alignment. Rebalancing keeps things on track.
Light: What’s your final takeaway for investors reading this?
Ragan: Don’t let familiarity dictate your investment strategy. Just because something feels comfortable doesn’t mean it’s the best long-term move. Real diversification asks you to look beyond borders and think globally. That approach helps manage risk and opens the door to a wider world of growth potential.
