Plain-vanilla portfolios have become a major presence in the target-date world after a difficult period for diversification. We don't think it's a good idea to bet that plain and simple will continue to win.
Everyone knows that capital market returns move in cycles. For a while, value stocks will outperform growth stocks. Then the pendulum swings, and the advantage shifts back to growth. You can also see that shift between US and international investments, small- and large-cap, or corporate bonds versus sovereigns-just to name a few complementary pairs.
We've seen a similar cyclical shift between times when diversification holds the keys to a portfolio's outperformance… and when it works against it. Over the past six years or so, diversification hasn't paid off. No sophisticated investor would invest in a painfully basic plain-vanilla portfolio of only large-cap US stocks and domestic core bonds, but such a portfolio would have outperformed most…