Baseball teams are in the midst of spring training, with the season’s opening day less than a month away. During this training period, players concentrate on better executing the game’s fundamentals, such as positioning, throwing, fielding and batting.
It’s rare that a player makes no fielding or throwing errors over the course of a season and certainly no one bats .1000 for the season. Most players are indeed happy if they get a hit in 1 out of 3 times at bat.
Some players more consistently hit for singles and doubles, with perhaps an occasional home run, while other players tend to emphasize the long ball with more regularity.
Home runs create a lot of excitement — and perhaps game-winning plays. Yet which player will likely posses a higher batting average? The consistent base hitter or the home run hitter?
It will likely be the base hitter. And if that’s the case, then why don’t managers fill their lineups with only consistent base hitters? Probably because the power hitters have potential for quickly changing the course and outcome of a game, especially if base hitters are aboard the bases ahead of them.
Thus it would be risky to complete a lineup comprised solely of one or the other. Rather it takes the right blend of players forged together to make an effective lineup. Ideally the base hitters lead off the batting order, followed by a few power hitters and then perhaps the remaining lineup may feature players whose strength is on defense as opposed to offense.
The manager will likely not use only right-handed batters, right-handed pitchers or power hitters in a lineup, for that would probably limit the team’s potential for winning any given game. Yes, it takes the right mix of players, capitalizing upon their strengths to form a winning team.
That winning team has a lot in common with a successful portfolio. The successful portfolio contains investments from different asset categories, sectors and global regions. It also contains some investments that achieve more consistent, albeit perhaps lower, returns over time, as well as some holdings which may offer the potential for higher returns but which also have greater volatility in results over time. The portfolio’s ‘sweet spot’ is finding the right combination of diverse holdings that will collectively combine to produce a more consistent return with a smaller variation in results from year to year.
In other words, the most effective portfolio will likely have some holdings with higher risk levels, tempered with some investments which have lower degrees of risk and less variation in results over time periods. That right combination is the key for helping the portfolio face fewer losses of a large degree when bear markets are present and it’s also the key toward helping you build and preserve your retirement nest egg more effectively.