According to academic research, over 90% of an investor's variation in return can be attributed to their asset class allocations. This means that, by far, the most important decision an investor can make, is how much to invest in various categories like stocks, bonds, CDs, etc. After deciding how much to invest in stocks, diversification becomes the next big question.

Diversification helps to avoid unpredictable risks specific to a single company, such as an accounting scandal. These risks are rare, but can ruin a portfolio concentrated into just a few positions. According to studies, even just 25 stocks can significantly reduce the risk of catastrophe by over 90%.

Now let's consider the S&P 500 as an investment. With 500 stocks it is certainly extremely well diversified. But diversification can cut both ways. Despite the lower risk, the returns are mediocre by the standards of many investment professionals.

A more sophisticated investment approach can lead to better portfolio performance and better investor outcomes. The stocks included in the S&P 500 are selected by a committee as a representation of the US stock market on average. Our approach is to select stocks based on their valuation, prospects, and other business factors. We aim for quality, rather than average.