Diversification is still important

There were a couple of articles in today's Globe & Mail I thought I'd summarize for you today and they have to do with diversification. It seems that investors are making investment decisions based on what investments have performed well in the recent past, and this in turn is resulting in concentrated portfolios. This is essentially the same as driving while looking in the rear view mirror and you're approaching a fork in the road.

The idea of diversification has taken a hit as a result of the last couple of bear markets, as it seems everything went down together at a time when diversification was supposed to help. While diversification may break down in the short-run, in the long-run it still can increase or at least maintain returns while reducing risk. Just don't forget to re-balance from time-to-time. The winners won't always be the winners, and the losers won't always be the losers.

GB