A random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing

DIVERSIFICATION 
INTO
EMERGING MARKETS HELPED

---

DURING “THE LOST DECADE”:
CUMULATIVE RETURNS FROM
ALTERNATIVE MARKETS

---

Source: Vanguard, Datastream,
Morningstar.
Moreover, safe bonds proved their worth as a risk reducer.

---

The graph 
Time Varying Stock–Bond Correlation
shows how
correlation coefficients between U.S. Treasury bonds and
large capitalization U.S. equities fell during the 2008–09
financial crisis. Even during the horrible stock market of 2008,
a broadly diversified portfolio of bonds invested in the
Barclay’s Capital broad bond index returned 5.2 percent.
There was a place to hide during the financial crisis. Bonds
have proved their worth as an effective diversifier.
TIME 
VARYING 
STOCK–BOND
CORRELATION
Data: 10Y Treasury return is

---

calculated from 10Y Treasury
yields. Yields are originated from
FRB website. Domestic stocks:
1926–1970 S&P 500 Index
(monthly reinv); 1971–4/22/2005
Dow Jones Wilshire 5000 Index;
4/22/2005 – present MSCI US
Broad Market Index.
In summary, the timeless lessons of diversification are as
powerful today as they were in the past. In Part Four, I will
rely on this discussion of portfolio theory to craft
appropriate asset allocations for individuals in different age
brackets and with different risk tolerances.

---