Posted on August 16, 2009 by Adam Pichette

What is diversification? Some think it is enough just to have their money invested in more than just one company, but what is real diversification? How can you ensure that if the stock market crashed tomorrow, you would not be wiped out of all your capital?
Asset allocation can be more important than performance. Obviously looking at a portfolio that makes 23% annually when your “diversified” portfolio is at a mere 8% maker this statement seem foolish. What if you look at a portfolio that was heavily invested in equities before the crash we suffered in 2008? The major market indices were down over 50% at one point. What if you were invested in all commodities and financial institutions? Then your 2008 portfolio could have been down 75% easliy. Not if you diversified. Gold, treasuries, equities, bonds and even different sectors of stocks. Just by breaking your finances down over 5 different asset classes could help protect you in the worst of market corrections. Sure high returns are great, but they are meaningless if every decade you lose it all in a crash.
Diversify. This is a simple yet practical tool that can help you protect and grow your capital in the toughest of markets.