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The importance of diversification illustrated in an exquisite quilt

In any given year, some asset class will outperform another.

Unfortunately, no amount of skill or experience has enabled anyone to forecast how various asset classes will stack up in any of those given years. And as a result, those who try to predict and time the markets usually get burned.

This challenge is illustrated nicely in the chaotic colours of this quilt of total returns by asset class.

For Oppenheimer’s John Stoltzfus, it teaches us a valuable lesson in investing.

“In our view, the quilt illustrates the importance of portfolio diversification and regular rebalancing,” Stoltzfus writes. “On its own, each asset class can be quite volatile, but a mix of assets in a balanced portfolio can lower overall volatility.”

Diversify. And rebalance.

Cotd asset class returns quiltOppenheimer

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