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View all search resultsThe case for diversifying across time
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A trader works on the floor of the New York Stock Exchange during morning trading on Jan. 24, 2025 in New York City, the United States. (AFP/Getty Images/Michael M. Santiago)
No prudent investor would build a portfolio around a single stock. But what about a single time frame?
Diversification is a standard part of the investor toolkit for managing risk. Everyone knows owning a portfolio of stocks rather than a single company reduces the risk of a devastating loss.
Investors can diversify further by spreading investments across asset classes, such as stocks, bonds and commodities, or by splitting holdings among regions, including the United States, Europe and emerging markets.
Yet there is another important area where some investors remain undiversified: time.
Investors probably do not think of it that way, but eschewing time diversification is exactly what they are doing when they place a big bet on the stock market's short-term performance.
Consider the following trade: An investor thinks the market's current view of the economy is overly pessimistic. They expect upcoming reports on unemployment, GDP and industrial production to beat consensus forecasts.
To capitalize on what the investor believes to be their superior insight, they switch from an all-cash position maintained through a recent rough patch, to a 100 percent weighting in large-cap stocks.
