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Special Report: Diversification Strategies

Why diversification matters and how to hone your approach.

When it comes to our well-being, we’re encouraged to establish healthy habits. Always eat breakfast. Stay hydrated. Exercise several times per week. Investing has its own version “healthy habits,” too. Keep costs low. Match your asset allocation to your time horizon. Build a diversified portfolio to protect against stock market volatility.

That last healthy investing habit is, however, rife with complexity. How much diversification is enough--and how much is too much? Which diversification strategies work best? How should you diversify stocks?

In this special report, we explore these topics and more, including which types of bonds provide the best diversification benefits to a stock-heavy portfolio, how well international diversification works, and whether diversification-seekers really benefit from holding commodities in a portfolio.

Why Portfolio Diversification Still Works Despite the recent rise in correlations across asset classes, it still makes sense to spread out your bets.

Watch: How to Diversify Your Portfolio Diversification strategies that worked in the past may not work in the future.

Watch: Should You Diversify by Stock Size and Style? New research backs up the importance of diversifying your stock holdings.

Does International-Stock Diversification Still Work? Correlations have trended up, but there's still a long-term argument for international diversification.

Which Bonds Provide the Biggest Diversification Benefits? Investors rely on bonds as ballast for their stock allocations, but their levels of effectiveness can vary greatly.

Do Commodities Still Work as Portfolio Diversifiers? As investors increasingly treat commodities as financial assets, their value as portfolio diversifiers has diminished.

Why Alternatives Don't Always Help Diversify Investors seek out alternative funds for a variety of reasons, but the diversification benefits might be smaller than you'd expect.

Watch: Should You Diversify Your Equity Holdings by Factor? A case can be made for owning a dedicated factor fund, but a broad market index likely has at least some exposure to most factors.

Does Factor Profile Diversification Still Work? Correlations for the major factor profiles are relatively high, but they can still show different returns in different types of markets.

Download: Morningstar’s Diversification Landscape Report

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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