DIVERSIFYING BY ASSET CLASS

While diversification abroad, as a way to reduce risk in a stock
portfolio, has become less rewarding because of rising correlations,
diversification by asset class is still holding its own. Correlations
between stocks and commodities and stocks and bonds
are still very low, although there will always be periods when they
all follow each other.
This is not only a good idea because of the theory of diversification;
it is also a good idea in a world where financial advice—
including this book—is ever more available to the everyday
investor. There are many more voices out there advising investors
to do this or that. A lot of this advice is to jump onto this bandwagon
or to jump off of that bandwagon. And because it is so
much easier for retail investors to put this advice into action, diversification
is a good hedge against the problem with following a
lot of different financial advice: Some of it is wrong.