May 8, 2024

Financial planning

Why is diversification important and how does it work on Plenty?

Emily Luk

CPA, CFA - CEO and Cofounder of Plenty

tldr; we’ll walk through why diversification is important and how Plenty portfolios make that easy for you.

  • Why is investing a long term game?

  • Why is diversification important?

  • How do Plenty portfolios give me diversification?

Why is investing a long term game?

One of the most common questions a new investors asks is: when’s the best time to start investing?

That’s often followed up with: “I hear there’s a bubble.” or “They say there might be a crash.” and ultimately “should I start now? or wait?”.

Warren Buffett is commonly referred to as one of the most successful investors of all time, having built a net worth of nearly $110B. And for all those individuals worried about investing well, Buffett states investors make the same mistake, and “the big mistake is thinking they know when to buy and sell stocks.”

So what does that mean?

“Don’t try to time the market.”

Trying to time the market often results in a stressful attempt to perfectly time selling when there are short term highs, or to perfectly time buying when there are short terms lows, instead of doing the easier path of just putting small amounts of money into the market consistently, over a number of years.

The stock market naturally goes through cycles of booms and busts, but every 7-10 years, it usually completes a cycle and ends at a higher place than the prior cycle. Over a short time period, it’s possible to lose money. Ever since 1949, the S&P500 (often used to measure the market) has roughly doubled every 7 or so years). But with more years invested, the probability of earning a return gets higher and higher until it reaches 95% when you’ve been invested for 10+ years.

Why is diversification important?

While it’s easy to “know” that the returns will eventually come, it can still be a shock when you open up an investment account to see that it dropped. And sometimes, you may need the investments for things like buying a house or sending your kid to college and can’t wait 10 years.

That’s where diversification comes in. Most portfolios are comprised of stocks and bonds, and they usually behave differently. Over the past two decades, when stocks went up, bonds typically had gone down. When stocks went down, bonds typically went up. In the finance world, this is called negative correlation because they behave in opposite ways. The benefit for that is when the bond portion of your portfolio drops, the overall portfolio doesn’t necessarily drop as much since the stocks might have no change or might even counteract that if it goes up.

Diversification helps protect your portfolio for large increases or decreases.

In a Plenty portfolio, we also invest in many different types of equities and bonds. This further increases the diversification of your portfolio to protect you from shocks, and looks to maximize the amount you earn for the risk you take

While the table below may seem confusing at first glance, and we’ll walk through it together by looking at the top row. Each color is a different asset class; the number shows the return % in that year (the higher, the better), the top row shows that there’s not a single asset class / color that is a consistent winner every year over a longer period of time. In 2008 (the orange square in the top left corner), the winner was inter-term government bonds. The next year, it was emerging-market stocks. Then small stocks the year after. The benefit of not putting all your eggs in one basket and holding a little bit of everything, is that you now have many opportunities for holding the “highest” returning asset class that year.

Source: Morningstar Direct, 2022 → Returns from 2008 to 2022

How do Plenty portfolios give me diversification?

Plenty portfolios are built to help you easily invest in:

  • US stocks

  • International stocks in developed countries like Germany

  • International stock in emerging markets like Brazil

  • US treasuries

  • US corporate bonds

  • US government bonds

We offer 10 different portfolios and recommend the best one that matches your investment preferences, and the investment goal you have. From there, we’ll do the heavy lifting to help you invest across your shiny new, diversified portfolio.

And be warned: many financial planners talk about how complicated diversification is to justify their 1% fee.

While a 1% fee may not sound too bad, Forbes latest article reports how a 1% fee can wreck your retirement.

  • If you invest $1,000 per month over 40 years, your investment could grow to $5.8M

  • An annual 1% would take your portfolio down to $4.3M

  • Total amount paid to your financial planner: $1.5M

Plenty only charges 0.20% annually because we want families to keep more for themselves. If you’re interested in trying it out for yourself, you can easily get started with a “Start Investing” goal in Plenty today.

If you’re interested in trying this out, create a “start investing” goal in Plenty today.


Butler, Benjamin, “Q4 2022 Market Trends in 7 Charts.” MorningStar. January 25, 2023.

Neufeld Dorothy, “Visualizing 60 Years of Stock Market Cycles.” Visual Capitalist. December 21, 2023.

Wise, Hannah, “Why timing the market is the wrong approach.” Julies Baer. November 23, 2023.

Mancini, Jeannine, “Warren Buffett Explains Investors Repeatedly Fall Into The Same Traps – 'The Big Mistake Is Thinking They Know When To Buy And Sell Stocks.” Yahoo Finance. November 10, 2023.

Fleck, Adam, “Staying Invested Beats Timing the Market—Here’s the Proof.” MorningStar. November 9, 2023.

Sullivan, Bob, “Average Stock Market Return.” Forbes. April 8, 2024.

Schneider, Jeremy, “The longer you stay invested, the higher your odds of success.” PersonalFinanceClub. Septmeber 14, 2023.

Mitchell, Cory, “Intermarket Relationships Definition: Correlations Between Different Asset Classes.” Investopedia. July 8, 2023. instance%2C bond prices can,have had a negative correlation.


Emily Luk

CPA, CFA - CEO and Cofounder of Plenty

Emily is the ceo and cofounder of Plenty. Started by a husband and wife team, Plenty is a wealth platform built for modern couples to invest and plan towards their future, together. Previously, she was VP of Strategy and Operations at Even (acquired by Walmart/One) and a founding team member of Stripe's Growth and Finance & Strategy teams. She began her career as a VC, and was one of the youngest nationally to complete her CPA, CA and CFA designations.


Financial planning

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