Cut Your Risk

It's not foolproof, but diversification is still a smart strategy.

It wasn't hard to feel like a chump in 2008, when stocks, corporate bonds and commodities all tanked at the same time. The experts said we would be protected from disaster by spreading our risk among those different kinds of investments. But we weren't.

Does that mean a strategy of holding a diversified portfolio is dead? Hardly. "It's kind of unfair to point the finger at asset allocation," says Jerry Miccolis, a New Jersey investment adviser and coauthor of Asset Allocation for Dummies. "The only people who didn't get hurt were those who weren't invested." But putting your money under the mattress is no long-term strategy. If inflation runs 3% annually, in just 14 years you'll need $1.50 to buy what costs $1 today.

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Contributing Editor, Kiplinger's Personal Finance