In 1748, Robert Wallace and Alexander Webster created the Scottish Ministers’ Widows’ Fund. The fund was designed to provide replacement income for the widows and orphans of Scottish ministers who met their untimely demise. Ministers could guarantee their widows an annuity of £10 to £25 a year, depending on the level of premium paid. The two founders used early versions of actuarial science to determine the maximum number of expected widows and orphans that would draw benefits from the fund at any given time. This ensured that the premiums could be profitably invested, initially through loans to younger ministers, without risk of running out of capital. In short, the founding of the Scottish Ministers’ Widows’ Fund marked the invention of modern-day insurance.
In the 268 years since then, insurance has evolved into a wide range of offerings. At its core, though, insurance remains a product designed to protect against financial risk:
- Life insurance is a safeguard against the loss of future income
- Homeowners insurance protects the buyer’s home and the equity they have built into it
- Car insurance can help recover the cost of a vehicle and the potential liability caused by a crash
Consumers are willing to accept some cost to reduce their risk of financial ruin, while enabling insurers to make a modest profit on average. Investors accept a similar tradeoff between short-term profits and long-term stability when diversifying their portfolio.
Diversification is one of the least expensive forms of insurance for investors. The availability of low-cost ETFs has made it nearly free for individuals to own the entire stock market. The cost is the loss of potential short-term upside in favor of long-term compounding. Broad-based portfolios may never double their value in a single year (let alone months or weeks), but they are also much less likely to result in a total loss of capital. Unlike many insurance products, which produce negative expected returns for the buyer, there is reason to believe diversification can add value in the long term. For example:
- Over half (51.6%) of publicly listed companies generated negative cumulative returns from 1926-2023.
- The average U.S. stock from 1926-2018 underperformed Treasury bills. In fact, just 4% of U.S. stocks accounted for the total net gains above Treasury bills over this period.
- 90% of large-cap fund managers underperformed the S&P 500 over the 15-year period from 2010 – 2025.
This evidence supports the merits of diversification, but does not make staying diversified easy in practice. Investor enthusiasm can lift share prices long before earnings materialize. Every high-performing stock feels like a no-brainer after the fact, when in reality, finding these diamonds in the rough is nearly impossible. The current market environment is no different. Pockets of the market are riding the AI narrative to extraordinary heights, mega-cap tech companies continue to fortify their market leadership, and trillion-dollar IPOs are capturing the attention of the world. This can make anything less than being all-in on AI feel like not being in AI at all.
For our clients at Heritage Wealth Advisors, we continue to emphasize diversification through this uncertainty. Our in-house investment team builds portfolios around systemic themes that we believe will drive economic and market growth in the decades ahead. This means investing in markets that benefit from accelerated growth, expanding corporate profits, and rising share prices. It also means holding equity alternatives as insurance against extended bouts of volatility. This unrelenting diversification can be challenging during periods of investor enthusiasm, but history suggests that patience is rewarded.
For a complete synopsis of the current economic and market environment, including our interpretations of the variables impacting investors as we understand them today — use the QR code to access the full 2026 Halfway Report on our website.
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