Portfolio Diversification’s Failure: Bear Markets Calls for a New Strategy

Part 1 of 2: 

Talk to most investment professionals and they will tell you that portfolio diversification is the key to successful investing and that asset allocation among multiple asset classes, not individual security selection, accounts for as much as 100% of investment returns. Being broadly diversified among different asset classes is supposed to give you strong exposure to market rallies and protection in down markets as non-correlated assets zig when others zag and soften the downside impact.

However, there are times when diversification doesn’t seem to work. Take the huge sell-off in the spring of 2020, the shortest bear market in history when asset classes plunged pretty much across the board, even gold and Treasuries took a hit. 

What are the lessons to be learned about the usefulness of diversification from 2020’s experience? Is there a better way? 

Our guest today is a financial thought leader in asset allocation at T. Rowe Price. Sébastien Page, Head of Global Multi-Asset at the firm. Page is also the author of a new book titled Beyond Diversification: What Every Investor Needs to Know About Asset Allocation.

Page says diversification did fail in 2020’s bear market but that shouldn't surprise us, and yes, there is a better diversification strategy. We’ll find out what it is. 

WEALTHTRACK #1733 broadcast on February 12, 2021

More info: https://wealthtrack.com/portfolio-diversifications-failure-to-protect-in-bear-markets-calls-for-a-new-strategy/

 

Beyond Diversification: What Every Investor Needs to Know About Asset Allocation: https://amzn.to/3u2Syrg

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