A new lesson can be learned from the recent financial crisis: not even well-diversified portfolios can protect investors from taking substantial losses during a market meltdown. Tom Lauricella in his Wall Street Journal article describes how some popular hedging instruments such as foreign stocks are moving more closely in sync with the primary assets in a portfolio, thus losing their hedging nature. Asset allocation, however, is not an outdated concept; for instance, inclusions of gold or Treasury Inflation Protected Securities (TIPS) can indeed mitigate the effects of falling markets.
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