It’s important to remember there are two reasons for diversification. The first is it reduces risk, and the second is it exposes you to whichever asset class is doing well each year. Since we don’t know which asset class will be the best performing ahead of time, think of diversifying across asset classes as fielding a baseball team, wherever the ball is hit to on the field there is someone positioned there to make a catch.
This year the rebound in real estate from the 2007-2009 crisis made REITs the top performing asset, while emerging markets added to their run as the bottom performer. (Commodities were down so much they didn’t even make it onto the chart)
