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August 2019

The Importance of Diversification

Yesterday, Wednesday, August the 14th, the market dropped 3%. We know that hurt, but how did a diversified portfolio fare? Yes, the Dow dropped 3%. Fortunately, if you're diversified, you discovered that international equities dropped far less, and fixed income bonds - that asset class that everybody loves to hate today - they did well. Interest rates fell. It was one of the triggers for the market. When interest rates fall, bonds do well. Now, it's very instructive to look at history when we look at these events. In 2018, five-year global bonds were the best performing asset class. In fact, all equities were in negative territory, and international equities were definitely leading the pack in the downside. The firm Dimensional Fund Advisors has a wonderful matrix book that discusses the randomness of returns in different asset classes. We've attached the chart to this video. What it does is, it...
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