Diversification rests on the ability to minimise overall risk towards portfolio returns by combining a set of assets that interact with each other in an opposing manner. For example, we’d combine assets that thrive in a growth environment like emerging market equities and those that have defensive capabilities in times of heightened uncertainty like developed market bonds. This characteristic becomes vital when things go haywire, because the resistance of the defensive assets would, to a certain degree, offset the losses introduced by cyclical assets and smooth out the journey.

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