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Diversification may not work this time?
Old 12-03-2013, 02:03 PM   #1
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Diversification may not work this time?

Interesting article at Fidelity. Suggesting that having a stock/bond mix for diversification may not work so well in the near future.

https://www.fidelity.com/insights/ma...is-not-working
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Old 12-03-2013, 02:28 PM   #2
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Genuine diversification sometimes means owning what you hate.
The only thing not correlated in the 2008-2009 crash was my total bond fund. Everything else, and I mean everything, crashed together!
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Old 12-03-2013, 03:23 PM   #3
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The only thing not correlated in the 2008-2009 crash was my total bond fund. Everything else, and I mean everything, crashed together!
+1 I wasn't even that happy with my total bond fund, IIRC, though I'll take your word on the degree of correlation. The only investment I had that seemed immune was my money market accounts, and all the financial news shows were loudly predicting that money market funds were going to "break the buck" at any moment. Scary times! Makes me glad that we are now in the upswing part of the financial roller coaster ride.
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Old 12-03-2013, 03:46 PM   #4
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Good article. Let me simplify it. There are two basic risks in any financial market: systemic and non-systemic. Diversification works only for non-systemic risk.
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Old 12-03-2013, 03:50 PM   #5
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Diversification works well enough for me. The periods where assets seems to correlate strongly are temporary. Over the long run they move in different directions and/or at different speeds. I don't need assets to be (mostly) uncorrelated all the time if I am patient. I hope to have enough poor correlation over a multi-decade period to gain some benefit from diversification and rebalancing.
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Old 12-03-2013, 03:57 PM   #6
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Diversification has worked well for us also. Cash held up well in 1987 and 2000. Cash and intermediate bonds in 2008.
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Old 12-03-2013, 04:23 PM   #7
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Maybe it will work, maybe not. Anyway I still haven't found a better plan. Therefore I'll continue to diversify and own a bunch of everything.
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Old 12-03-2013, 05:37 PM   #8
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Good article. Let me simplify it. There are two basic risks in any financial market: systemic and non-systemic. Diversification works only for non-systemic risk.
+1
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Old 12-03-2013, 05:53 PM   #9
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Maybe it will work, maybe not. Anyway I still haven't found a better plan. Therefore I'll continue to diversify and own a bunch of everything.
+1 and for me, I am keeping my job for 2 more years.
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Old 12-03-2013, 06:02 PM   #10
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+1 and for me, I am keeping my job for 2 more years.
The diversification provided by an earned income is something many of us have lost.
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Old 12-03-2013, 06:13 PM   #11
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Good article, and I agree 100% with author about being wary of long bonds. I wonder how historical bond returns relate to current situation of artificially record low interest rates (QE, Abe-nomics, ECB, etc.). US has never seen a tripling of T-bond interest rates over a 2-3yr period as we may if rates back up to a more "normal" 4% by 2014/15 as some predict.
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Old 12-03-2013, 06:24 PM   #12
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The diversification provided by an earned income is something many of us have lost.
My job is a good part of diversification play for me right now .
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Old 12-03-2013, 06:29 PM   #13
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The diversification provided by an earned income is something many of us have lost.
This is the best diversifier known to man. Not very popular on an early retirement board, and not always possible. But an older woman recently wrote that she had established a helpful monthly income cleaning houses. Little to nothing in start-up costs, and quick to get going. Likely the best thing many of us might do for ourselves would be to figure out and get started on a reasonably controllable small business.

Since almost everyone will have SS, add a modest business income to that and it would help mightily in tough turndowns.

Ha
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