Diversification works its magic
Diversification is a bit like the magic of compound interest. Having a well-diversified exposure means your portfolio won’t be as volatile. And as the table at right shows, the best-performing asset each year can vary dramatically and last year’s top performance is no guide to the year ahead.
So it makes sense to have a combination of asset classes in your portfolio. This particularly applies to assets that are lowly correlated - ie, that don’t just move in lock-step with each other. For example, global and Australian shares tend to move together during extreme events. But bonds and shares tend to diverge when crises hit. Shane Oliver, head of investment strategy and chief economist, AMP Capital