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While attractive fixed-income returns may be difficult to find, the diverse nature of the market offers compelling relative value opportunities.


Annual stock and bond returns have varied widely by asset class over the years. This piece analyzes the last ten years of data, which can assist in determining portfolio allocation.


Investing in asset classes that demonstrate little or no correlation to one another may help you enhance diversification and reduce portfolio volatility. While diversification can neither ensure a profit nor eliminate the risk of experiencing investment loss, the ideal scenario is to have a mixture of noncorrelated asset classes in an attempt to reduce overall portfolio volatility and generate more consistent returns over the long-term.


This chart is commonly used to explain why investors should consider diversifying across various asset classes and strategies. It ranks various asset classes and strategies from best to worst performers every year. It not only includes traditional asset classes such as stocks, bonds and cash, but also alternative asset classes and strategies such as commodities and long/short equity, respectively.


To help manage risk, investors often evaluate a portfolio’s level of diversification by analyzing stocks according to their market capitalization or investment style. Diversification may also be achieved by including a mix of investments in different sectors or industries. Similar to market capitalizations and investments styles, sectors have moved in and out of favor, as shown in this piece.


Dow Jones Historical Trends Chart

Over the last 125 years, the stock market has rewarded some investors with long-term growth. History shows that the equity market enters long periods of high returns, followed by lengthy periods of lower ones.


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