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Finance For Dummies

Finance For Dummies offers personal finance information on investing, retirement investing, finance, insurance, credit cards, loans and more. Personal finance education is our goal.

Sunday, August 06, 2006

Diversified Portfolios and Bear Markets

During a severe market downturn diversification can save you from deep losses. Bear markets are actually the best time to see the benefits of diversification. The December 1972-June 1976 recession and the June 1987-December 1990 are two examples.

If you take $1,000 and diversify it: 35% stocks, 40% bonds, Treasury bills 25%. Then compare it versus a stock 100% portfolio.



1970s $1,149 Diversified
1970s $1,104 Stocks

1990s $1,324 Diversified
1990s $1,227 Stocks

Over the long run diversification will lower your risk and oftentimes increase your return.

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