Diversification, Risk and Bull Markets Calculator
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Diversifying your assets among the three main asset classes – stocks, bonds and cash – is an effective way to deal with market risk.
This calculator lets you compare the performance of a diversified portfolio to one made up of stocks only through a complete bear/bull market cycle.
For example, during the bear market from May 2008 to February 2009, stocks decreased in value by 43.3% over this 10 month period. A $100,000 portfolio made up of stocks only, with no diversification, would have declined to $56,740 at the end of the bear market. By the end of the subsequent bull market from February 2009 to March 2011, the stock portfolio increased by 71.2% to $97,139.
During the same bear market, a diversified portfolio made up of 33.3% stocks, 33.3% bonds and 33.4% cash, would have declined by 11.5% to a value of $88,460 at the end of the bear market. By the end of the subsequent bull market, the diversified portfolio increased by 20.5% to $106,569.
After the complete bull-bear market cycle, the value of the stock only portfolio was $97,139 versus $106,569 for the diversified portfolio.
Diversified portfolios generally provide lower returns during bull markets than a stock only portfolio but during bear markets, they cushion the impact of falling stock prices. You won’t hit the high “highs” of the market but you’ll also minimize the low “lows”.
Diversification and Bull Markets Calculator