Diversification

As the common mantra reminds us all, "don't put all of your eggs in one basket." Diversification, in investing terms, refers to the process of spreading out risk; mainly, the risk that does not compensate investors over the long term. Concentrating a portfolio within a few stocks exposes investors to a large amount of risk that is not often accompanied by high expected returns.

As another well known saying goes, “there is no such thing as a free lunch.” The market is not going to reward investors without exposing them to a proportional amount of risk. Ultimately, buying all companies across all sectors and countries minimizes the concentrated risk specific to any firm or industry.

But you cannot diversify away all risk.

Market risk refers to the risk that is inherent with investing in capitalism, and this risk is accompanied with an appropriate expected return.

This idea extends around the entire world. Diversifying on a global scale is a good idea given that the international market has become increasingly important in the world economy.

One prudent approach to minimize risk and maximize the probability of optimal returns is to hold an index portfolio. IFA Sustainable's ten index portfolios are globally diversified across over 4,500 companies in all industries among approximately 40 different countries and are calibrated to capture specific risk exposures that history has shown has rewarded investors over long periods of time.

Within the entire sustainable investment product marketplace, IFA Sustainable deploys a very diversified portfolios at a very low cost among both sustainable mutual funds and exchange traded funds, as you can see in the table below.

Description Average # of Holdings Average Expense Ratio
Equally Weighted Sustainable Mutual Fund 65 1.40%
Equally Weighted Sustainable ETF Fund 41 0.67%
IFA Sustainable Index Portfolio   4,951 0.43%
As of December 31, 2012   |   Sources: ©Morningstar, Inc.