Why diversification will work again - Money Magazine

Money Magazine has an article online on why investors should not give up on diversification. As you know, the ETF Newsletter is a big believer in the balanced ETF portfolio.

Here is an excerpt from the article:

"...using the financial crisis to conclude that diversification is pointless because stocks, bonds, and other assets will move in tandem forevermore is a misreading of recent history.

A better interpretation: Michele Gambera, chief economist for investment consultant Ibbotson Associates, says that market behavior in the past couple of years was attributable to the "yelling fire in a movie theater" effect. Just as the theater audience would rise in unison and race for the exits, investors move in sync away from risk and toward safety in a financial meltdown, as they did in 2008. Once the all-clear is sounded, Gambera says, they march back into the market together, bidding up all kinds of assets.

It's only when economic conditions start to return to normal -- after the movie's over, in effect -- that investors, and investments, move independently again."

You can read the complete article here:

http://money.cnn.com/2010/03/03/pf/funds/diversification.moneymag/index.htm