In February 2002, Secretary of Defense Donald Rumsfeld infamously explained, "[T]here are known knowns… We also know there are known unknowns… But there are also unknown unknowns--the ones we don't know we don't know." It wasn't the most eloquent delivery, but the point stands: It's dangerous to be unaware of what you don't know, and that certainly applies to investing, primarily in the assessment of risk and opportunity.

Risk
Before the world shut down in March 2020, investors weren't regularly assessing the risk of a worldwide pandemic. Very few were weighing the potential economic consequences of such an event or its effects on capital markets. Afterall, the last pandemic was the Spanish Flu in 1918. Investors were, however, at least mildly aware of risks like war and natural disasters because, unfortunately, these are regular occurrences.

Opportunity
It's easy to miss out on returns when you focus only on a handful of stocks that are regularly covered in the news. For example, this week NVIDIA made headlines (again) after crossing $4 trillion in market value, which has never been done before. However, NVIDIA isn't even among the top 50 of S&P 500 year-to-date returns, not to mention the fact that international developed equities have outperformed the S&P 500 itself by over 10% over the same period.

Solution
How do you plan for these "unknown unknowns"? Diversification. Your portfolio should be designed with these risks and opportunities in mind. Unfortunately, that means there will always be positions in your portfolio you wish you didn't own, as some positions outperform others. But over the long-term, you will come out ahead.

__________

Josh Norris is an Investment Advisory Representative of LeFleur Financial. Josh can be reached at josh@lefleurfinancial.com.

Josh Norris, CPA, CFP, CFA is the managing member of LeFleur Financial, a wealth management and tax advisory firm.