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I have investments in three of the best mutual funds. However, they are not performing. Why?

Yes, you may own three of "the best" mutual funds, with three of the top fund companies, but perhaps you actually own just one product. In other words, you're not following what financial professionals call style diversification. All of your eggs are in one similar basket of investments. Also, keep in mind that past performance is no guarantee of future performance.

One-style volatility

If you own three funds, whether they're the best or otherwise, chances are all three funds will be performing similarly. And when the market turns around? -- they'll most likely all turn around together.

Style Differences

Diversifying your investments - spreading your risks - is not just about choosing a variety of good stocks or mutual fund companies. It's also about choosing different management styles that will offset market volatility, reduce risk, yet produce growth in a portfolio. Because you own three different equity investments, we will assume for this article that you are comfortable with equities and believe in their proven track record over long term. So we'll concentrate on defensive equity investing only.

Diversifying across different equity styles is a concept that many investors find hard to grasp. Looking at the four key equity styles helps to illustrate the defensive approach to investing.

The four key equity styles are:



Invests in undervalued stocks that are temporarily selling at cheaper prices than they are worth in the current market. These are your buy-and-hold investments.


These are rapidly growing industries.


Momentum investing is about finding companies that are in the midst of positive changes, such as becoming more competitive, or improving technology.


This style looks for quality, smaller-sized companies that are often starting up, with assets usually under $500 million.

Mixing styles in your portfolio

By including the different management styles, you can significantly reduce risk and volatility in a portfolio. A way of looking at the strategy is to think of how you would plan for a summer vacation at a cottage. Along with the suntan lotion, you would also likely take along an umbrella to protect yourself in a downpour.

Investing in the stock market is no different from planning for good days and bad days. You can't avoid either. Holding a mix of management styles can bring balance to your portfolio come rain or shine. The result is less risk and volatility, with more long-term potential.

Building a defensive portfolio

Plan and build a portfolio that includes investments across a variety of styles - a mix of value, growth, momentum and small-cap. Of course, your investment goals and risk tolerance plays a big part in what investments you choose. You must be comfortable with your choices.

A well-balanced portfolio doesn't happen overnight. A disciplined pre-authorized savings program is an excellent way of building a portfolio, as well as buying stocks at lower prices during a depressed market. In the current market, many investors see the dramatic slump in the technology sector as a buying opportunity.

One of your best defenses during volatility is an experienced advisor. A financial professional can help you choose among the different styles and gear a portfolio towards your goals and risk tolerance


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