Today we're talking about diversified investments, the Holy Grail of reducing your volatility in your portfolio. I'm Rob Tétrault from robtetrault.com, Head of the Tétrault Wealth Advisory Group here at Canaccord Genuity Wealth Management. And I am pumped today to be talking to you about diversified investments.
What does true diversification mean? True diversification in my mind, is a movement in prices of your asset classes that are traditionally either uncorrelated or reversely correlated. Historically, back in the old days, what that meant was effectively three asset classes, three or maybe four asset classes. You had stocks, you had bonds, you had cash.
Sometimes people would call that as an asset class. And typically you'll have either gold or commodities as kind of another asset class. Now in the old days, let's break it down to two asset classes, stocks or equities, and bonds or fixed income. For the first 80 years of the the century most of those asset classes moved in reverse order (reversely correlated or inversely correlated). You had a stock move positive, a bond moved negative. What that would do for you long-term in your portfolio, if your stocks were doing unreal and you had half of your portfolio in stocks, the other half in bonds, each of them paying an income stream and the dividends from the stocks, the fixed income coupon payment from the bonds, you kept collecting your income. In addition to that, they would move in reverse order.
