Research Affiliates: The Danger In ‘Debalancing’

June 08, 2015

Eat a balanced diet. Drilled into our brains since preschool, this advice falls squarely in the "duh, everybody knows that" camp. But it's not just kids who need reminding. Parents and grandparents, as role models and dietary enforcers, do too. Common sense alone tells us this universally applicable dictum is the right way to eat. Different foods have different nutritional and caloric values. If we eat a wide variety of food groups, or as a five-year-old child is taught, "Eat a rainbow," good nutrition is likely to take care of itself.1


The hardest part of coloring in the rainbow for most eaters is adding the greens, yellows, and oranges that represent fresh fruits and vegetables. Everyone has an excuse: the taste, the texture, the expense. We try our best to make fruits and veggies more appealing to ourselves and to our children. One seemingly easy option is to eat prepackaged dried fruit or veggie chips. Both can be quickly packed for school or work lunches, and many prefer the taste. Yeah! Balance achieved. Or is it? 


Indeed, closer examination finds that the drying and packaging processes can significantly diminish the health benefits of fruits and vegetables. The drying process concentrates the sugars in the fruit so if we eat the same amount of dried as we do of fresh, the amount of sugar we're consuming skyrockets. And for some fruits, such as cranberries, sugar is even added to counteract natural tartness. As for veggie chips, they have many more calories than their fresh counterpart, while adding salt and fat and subtracting vitamins.  Our well-intentioned effort to maintain or improve dietary balance actually backfires. Our imbalances are only exacerbated through poor substitution! 


Likewise, investors intuitively understand that they should broadly diversify the portfolio of assets that they hold. In other words, their asset allocation should "look like a rainbow." But maintaining the optimal level of diversification is hard. As our colleague Jason Hsu says, "Diversification is the strategy of maximum regret because some part of the investor's portfolio is always underperforming its benchmark!" For most investors, staying diversified is like trying to get a five-year-old preschooler to eat broccoli—it's just plain "yucky" despite all the well-meaning, repeated pleadings of advisors and parents, respectively.



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