Putting 2020 into Perspective: Diversification May Work Better than You Think

Investors wish to avoid the pain of downside risk while seeking portfolio returns. The ability of a diversified portfolio, especially long-only, to provide relief during market turbulence has come under attack in recent years with many saying that diversification disappears altogether when investors need it most. The evidence here suggests the oft repeated “all correlations go to one in a crisis” is an exaggeration. Instead, diversification remains as relevant to investors today as ever before. Furthermore, achieving a globally diversified portfolio is also never before easier. Although a global diversified portfolio has not eliminated the risk of declines in portfolios in the past, it has been shown to provide both meaningful downside protection while also being an efficient portfolio; that is, in providing a sufficient return for the risk taken.