The Tablecloth That Never Dips
Imagine two food stalls. One sells only laksa; the other sells only dessert. Both have good years and bad years. A partner who owns both, in the right proportions, eats far more steadily than either sole owner — and earns nearly the same over the cycle.
That is diversification. It is the closest thing investing has to a free lunch, because it improves risk without necessarily reducing return.
What Correlation Actually Means
Assets are correlated when they tend to move in the same direction. The S&P 500 and the Nasdaq 100 are highly correlated — own both and you own a bigger helping of the same bet. But stocks and long bonds have, historically, moved together far less. When equities crash, flight-to-safety flows often lift bond prices.
That negative-to-low correlation is the entire game: a portfolio whose parts zig and zag can have less volatility than any single component.
The Practical Version
A standard building-block portfolio looks like this:
- Global equity — the growth engine.
- Bonds — the shock absorber and dry powder.
- Cash/SORA-linked reserves — liquidity for living expenses and the occasional opportunity.
- Optional sleeves — credit (high-yield), REITs, gold, small allocations that add diversification but also add behavior risk.
The percentages matter less than the discipline of anchoring: deciding your target, rebalancing when drift exceeds a band, and refusing to change the plan in the heat of a drawdown.
The Rebalancing Discipline
When equities rise for years, your equity sleeve quietly grows to 70% of the portfolio. Rebalancing forces you to sell high and buy the laggards — mechanically, on schedule, with no emotion. It feels wrong precisely when it is most right.
Set bands. A common rule: rebalance when any class drifts more than five percentage points from target. Do it on a calendar, not on a feeling.
The Takeaway
Do not waste your risk budget on a single market. Spread it across assets that respond differently to the same world news. The reward is not higher returns — it is the ability to stay invested, which is the only return that matters over decades.