Diversification may help reduce recovery time

Sources: © 2021 – Morningstar Direct, All Rights Reserved1, and Wells Fargo Investment Institute, as of September 30, 2021. MGI = Moderate Growth & Income Liquid 3 Asset Group (3AG). Index return information is provided for illustrative purposes only. Performance results are for the Moderate Growth & Income Liquid (3AG) Portfolio and is hypothetical. Index returns do not represent investment performance or the results of actual trading. Index returns reflect general market results, assume the reinvestment of dividends and other distributions and do not reflect deduction for fees, expenses or taxes applicable to an actual investment. An index is unmanaged and not available for direct investment. Hypothetical and past performance do not guarantee future results. The composition of the Portfolio and the definitions of the indices and descriptions of the risks associated with investment in these asset classes are available at the “Index Definitions and Asset Class Risk Disclosures” link above.

Note: Corrections are declines of 10% or more. Bear markets are declines of 20% or more.

Diversification strategies do not guarantee investment returns or eliminate the risk of loss.

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Key Takeaways

  • Diversification has tended to reduce the time it takes to break even from a downside event.
  • Because each asset class has unique risk, return, and correlation characteristics, a diversified portfolio has the potential to provide more consistent returns and less downside risk through lowered volatility.