• Portfolio diversification does not always perfectly protect against downside losses in all market situations, but it can limit risk and improve overall performance.
  

• We advocate having a mix of various asset classes in each portfolio as long as those asset classes are reasonably valued based upon our market cycle and asset valuation criteria.
  

• The more uncorrelated these asset classes are with each other, the better.  See chart below of the historical correlations of various asset classes from 1984-2004:
  

Source: Zephyr Style ADVISOR, SsgA Advisor Consulting Services Research  October 1984 through September 2004.

• In a long term study conducted by Morgan Stanley Capital from 1972 to 1997, it was shown that a portfolio with equal weights of US stocks, International stocks, Commodities and Real Estate outperformed each of those individual asset classes with less volatility: