Some sound reasons to worry

Adding more than what has been considered normal or average
risk to your portfolio may become so de rigueur that Wall
Street will adjust all its risk-measuring devices to make it appear
that no more than normally needed risk is being taken, even if
many investors say they have no stomach for it. (So-called sophisticated
investors are already doing this, using hedge funds, complex
securities called derivatives, and other similar tools.)
Without a doubt, this shift toward greater risk will be difficult
for many investors, leading to some sleepless nights for many of
us. And there are some sound reasons to worry.
It has become harder to offset higher risk in your domestic
portfolio by diversifying into foreign markets. Once upon a time,
those markets tended to move at their own pace, in their own rections, acting as a counterbalance to the pace and direction of
the market at home. But as we will point out, too many foreign
stock markets abroad now are moving in line with Wall Street,
going up and down at the same time. It is especially disturbing
that this so-called correlation between stock markets in the
United States and stock markets abroad, while pronounced when
markets are climbing, is even stronger when the U.S. stock market
is falling.