THIS WEEK’S FOCUS

Understanding Correlation: How to Build a Truly Diversified Portfolio

Spoiler: It’s about more than owning a bunch of stocks.

Let’s face it: most portfolios aren’t as “diversified” as people think. Buying a little of everything in the same asset class is like ordering 10 flavors of ice cream—great variety, but it’s still just ice cream.

If you want a portfolio that doesn’t crumble every time the market sneezes, you need true diversification. The kind that spreads your risk, smooths out the bumps, and puts you in a better position to thrive.

This week, we’re talking about how to build that kind of portfolio—and how correlation plays a big part in making it all work.

IT’S MORE THAN JUST MIXING TESLA WITH AMAZON

What is Diversification, Really?

Diversification isn’t about owning a ton of different investments. It’s about owning the right mix of investments that respond differently to the same events. If your portfolio drops 10% every time the S&P 500 sneezes, that’s not diversification—it’s just bad risk management.

Here’s what true diversification looks like:

• Stocks from different sectors and geographies.

• Bonds to add stability and income.

• Alternatives like real estate, gold, or even a dash of crypto for spice.

The magic happens when you combine investments that don’t react the same way to market changes.

WHEN ONE ZIGS, THE OTHER SHOULD ZAG

Correlation: The Key to Smarter Diversification

Correlation measures how investments move in relation to each other. It’s your secret weapon for building a portfolio that’s both resilient and profitable.

• +1 Correlation: Two assets move in perfect sync—great for a wedding dance, bad for diversification.

• 0 Correlation: Two assets don’t care about each other’s moves. This is where things get interesting.

• -1 Correlation: When one goes up, the other goes down—an investor’s dream.

Example:

• If you’re heavily invested in tech stocks, a slowdown in the sector could tank your portfolio. But if you pair those stocks with low-correlation assets like gold or bonds, you’ll soften the blow.

TIME TO ADD SOME NEW PLAYERS TO THE PORTFOLIO

Asset Classes: It’s Not Just About Stocks

Stocks get all the attention, but they’re just one piece of the puzzle. To truly diversify, you need to spread your investments across different asset classes:

1. Stocks: Mix it up with large-cap, small-cap, domestic, and international.

2. Bonds: Stability during market chaos, and a steady source of income.

3. Real Estate: REITs (Real Estate Investment Trusts) can offer exposure to property markets without the hassle of being a landlord.

4. Commodities: Gold, oil, and other physical assets tend to perform well when inflation is high or markets are volatile.

5. Crypto: High risk, high reward—but a small allocation can offer diversification potential.

By blending these asset classes, you’ll create a portfolio that can handle a variety of economic conditions.

DON’T PUT ALL YOUR EGGS INTO AMERICA’S BASKET

Diversification by Geography

U.S. stocks dominate most portfolios—but the world is bigger than the Dow Jones and the S&P 500. Adding international investments can help you tap into growth opportunities and reduce risk tied to one economy.

The U.S. market may seem like a safe bet, but it’s not immune to downturns. By broadening your horizons and investing in other regions, you can access new growth stories, hedge against domestic market risks, and take advantage of opportunities you won’t find at home.

Examples of Global Diversification:

• Developed Markets: Europe, Japan, and Australia offer stability with mature economies and established industries.

• Emerging Markets: Countries like India and Brazil provide growth potential as their economies expand, but they come with higher risk.

But here’s the thing—there’s one market you might not have considered yet that deserves a closer look: Argentina.

Surmount’s Investing in Argentina Strategy (currently yielding a 322% return) gives you access to an emerging market rich with opportunities. Argentina is a global leader in commodities like lithium (key for EV batteries) and agricultural exports, and its undervalued assets present a unique chance for growth.

Our strategy focuses on:

• High-Growth Sectors: Targeting lithium production, agriculture, and natural resources.

• Risk-Managed Diversification: Balancing Argentina exposure with broader global assets to navigate volatility.

• Dynamic Rebalancing: Automated adjustments keep your portfolio optimized as market conditions shift.

TECH ISN’T THE ONLY GAME TO PLAY

Sector Diversification

If your portfolio is packed with tech stocks, congratulations—you’re riding the most exciting rollercoaster in the market. But when tech crashes, you’ll feel the full brunt of the fall.

Instead, spread your investments across multiple sectors:

• Healthcare: Recession-proof and always in demand.

• Energy: Plays a key role in global economies.

• Consumer Staples: Products people buy no matter what’s happening in the market.

Every sector behaves differently depending on the economic environment. Diversifying across sectors helps protect you when one industry underperforms.Don’t just invest—protect what you’ve built.

OWNING MORE OF THE SAME ISN’T PLAYING IT SAFE

The Fake Diversification Trap

A lot of investors fall into the trap of “fake” diversification. Owning 30 different stocks or 5 ETFs that all track the S&P 500 isn’t a diversified portfolio—it’s just doubling down on the same risk.

The same goes for overloading on one asset class (like all stocks or all real estate). Diversification only works if your investments truly balance each other out.

EVEN GREAT PORTFOLIOS NEED MAINTENANCE

Why Rebalancing is Non-Negotiable

Over time, your portfolio will drift from its original allocation. If stocks have a strong year, they may take up a larger chunk of your portfolio than you planned—leaving you overexposed to risk.

Rebalancing ensures your portfolio stays aligned with your goals.

• How to do it: Sell some of the overperforming assets and reinvest in underperforming ones.

• When to do it: Annually, quarterly, or after significant market moves.

Surmount’s automated strategies include dynamic rebalancing so you don’t have to lift a finger.

YOUR GATEWAY TO CONSISTENT, HIGH-GROWTH INVESTING

Spotlight Strategy: T. Rowe US Equity Research Tracker

Looking for a high-performing, growth-focused strategy backed by proven research? The T. Rowe US Equity Research Tracker mirrors the equity research expertise of T. Rowe Price’s US Equity Research Fund. This strategy combines the power of fundamental analysis with the precision of portfolio diversification, offering a reliable option for investors seeking strong long-term returns.

1. Exceptional Long-Term Performance

This strategy has delivered an all-time return of 226.76%, significantly outperforming its benchmark (SPY), which posted a return of 78.61% over the same period. That’s a clear indicator of its ability to generate alpha.

💡 Alpha Alert: With an annual return of 26.58%, this strategy doesn’t just keep pace with the market—it sets the pace.

2. Focused Sector Allocation

The T. Rowe US Equity Research Tracker isn’t just throwing darts at the board. It’s laser-focused on sectors with high growth potential, with a smart allocation that includes:

• 55% in Technology: Microsoft, Apple, and NVIDIA are key holdings driving returns.

• 26% in Consumer Cyclical: Capturing opportunities in industries that thrive during economic upswings.

• 10% in Communication Services: Leveraging the strength of companies like Alphabet (Google).

This sector mix gives you exposure to industries shaping the future while maintaining balance through diversification.

3. A Proven Strategy for Moderate Risk Investors

This strategy strikes a sweet spot between growth and risk management. Here’s why:

• Drawdown Control: While no investment is risk-free, this strategy maintains a drawdown risk that aligns with its moderate risk score of 2.16—offering growth without excessive volatility.

• Trades Per Day: With an average of just 0.01 trades per day, this is not a high-frequency trading strategy. It focuses on long-term value over short-term noise.

4. Who Is This Strategy For?

This strategy is perfect for investors who:

• Want exposure to U.S. equities with a focus on technology and growth sectors.

• Are seeking long-term capital appreciation without excessive day-to-day trading.

• Prefer a moderate-risk approach with carefully balanced diversification.