Yoshikami: Is this the death of diversification?
Let's face it, investing over the course of the last couple years has really been all about investing in the United States. Prudent investors who have diversified into commodities, emerging markets and international positions have been punished for having a cautious perspective.
It is logical to ask if diversification still makes sense. After all, the bottom line for most investors is the bottom line, and theoretical diversification strategies that don't deliver results are hardly satisfying in a world where the S&P is rocketing skyward.
There is no doubt that this market is crazy. Look at the price movements of Netflix, Google, Apple and a variety of other companies that have gone up and down for no apparent logical reason. I doubt very much that this pattern of irrational price movements will end anytime soon, and that must be recognized and absorbed by investors as you develop an investment strategy.
So, let's examine the choices in front of you as you allocate your portfolio and try to make sense of the most unloved market advance in recent memory. The average mutual fund, hedge fund, allocation strategy and investment advisor has lagged the performance of a market fueled by the rally in lower-quality, higher PE stocks.
As Jeff Cox brilliantly wrote in a recent article on CNBC.com, the most unloved and highest price-earnings ratio positions have significantly pushed the S&P 500 higher.
(Read more: Mom and Pop missing the rally, but OK with it)
You could simply throw in your money with the S&P 500 herd and hope that the rally continues. This is always a great temptation when market advances are as strong as they have been in the past several years. But remember, the S&P 500 has lost 50 percent of its value three times in the last 15 years. Remember guaranteed stocks like Cisco that couldn't fall but did? Nothing is guaranteed to stay up or go up.
Your second option is to avoid the market completely in total disgust based on the belief that economic fundamentals do not justify price movements. Many individual investors have taken this path and have lost out on massive returns in the greatest bull market in 50 years. Coupled with a market rally, investors who have been cautious and sat in cash, also confront 3 percent inflation, which erodes purchasing power.
Your third option is to believe what John Templeton once famously said: that the most dangerous words in developing an investment strategy are "this time it's different." A belief in this perspective suggests that an allocation strategy based on the long term will provide results that are measured and focused on a combination of risk versus return (assuming you have the right allocation in place).
(Read more: Sidelined cash suggests 'mini-rotation' into cash)
This third option requires patience, and nowadays who has any patience? We can't sit through commercials anymore when watching television, and a fax machine is considered archaic because it is incredibly slow. We can't wait to get to our computers; instead, we have smartphones that allow us instant gratification.
Still, despite this change in our patience levels, you should carefully consider the alternatives and determine what the right strategy is for you. The deciding points will be a combination of return hopes, risk fears and time horizon. This cocktail of decision points will drive you to make the judgments you believe are best for your investment strategy.
—By Michael Yoshikami, CNBC Contributor