Di­ver­si­fi­ca­tion works its magic

Money Magazine Australia - - IN BRIEF -

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

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