Looking beyond labels can help investors build portfolios that are less dependent on any one market or economic outcome.
Many investors think they are diversified.
A typical portfolio may contain a range of equities and bonds. On paper, that appears sensible. Different assets should behave differently, helping to smooth returns through changing market conditions.
That said, recent history suggests otherwise.
When inflation surged in 2022 and central banks aggressively raised interest rates, shares and bonds fell together. Assets that were expected to deliver diversification responded to the same underlying forces in the same way. Portfolios that looked balanced suddenly appeared far less resilient.
Inflation concerns have resurfaced amid unresolved tensions in the Strait of Hormuz.
True diversification depends less on how many assets a portfolio holds than on understanding what drives their returns.
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