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Diversify Your Portfolio? Strategists Debate How

A lot of investors took some major losses over the past year, casting doubt on standard advice like asset allocation and diversification. So, should investors keep diversification as a way to manage their portfolios? Doug Kreps, principal and managing director at Fort Pitt Capital Group, and Dan Solin, author of "The Smartest Retirement Book You'll Ever Read," gave their thoughts to CNBC on Tuesday.

"Even though portfoio's were decimated, diversification worked fine," said Solin. "Bonds didn't lose any money, and if you had a globally diversified portfolio of stocks, you probably lost less money than you would have lost if you didn't. It doesn't protect you from over all market decline but it works better than the alternative."

"Diversification can help and achieve long term goals, but the issue is how you achieve that diversification," said Kreps. "I think what investors miss out on is that discipline to diversify and maintain that plan. An active manager can help investors keep that discipline."

But Solin disagreed. "Active management has investors chasing returns that all the studies show, just don't work," said Solin. "What Wall Street does is package luck and sell it as skill. The real data shows that passive management, actually in the last 20 years has achieved a greater return than active management."

"Active management can help," Kreps countered. "The average index fund, according to the Morningstar Universe rating, has a 2.85 percent star rating, the average active fund has a 2.95 rating. Active management has shown it can work."

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Disclosures:

Disclosure information was not available for Kreps or Solin.

Disclaimer