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What is portfolio diversification?

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In the universe of investment, we often hear the phrase Do not put all your eggs into one basket. Putting into context, it means avoiding investing all your money in a single asset class.

By investing all your money in a single asset class, you may potentially lose all your money if the investment value of that asset class falls to zero.

Diversification

In contrast, having a portfolio that invests in different asset classes, the risk of losing all your money may be potentially mitigated.

Diversification

Investing into different asset classes is a concept called diversification.

Diversification
reduces risk

In times of crisis, diversification may potentially helps to lower the impact of market volatility.

How does diversification reduce risk?

The key is correlation.

Correlation

Often, stocks and bonds have what is called a negative correlation.

For example, when the stock market is doing well, and stock prices are going up, investors are generally feeling confident and are more likely to invest in stocks.

During these times, they might sell off bonds, which are considered to have lower risk as compared to stocks but offer lower returns. This selling can lead to lower bond prices.

Conversely, when the stock market is doing poorly, investors often seek the safety of bonds, pushing their prices up. In essence, when stocks prices are up, bonds prices might be down, and vice versa.

Stability in Portfolio

Essentially, adding bonds to a portfolio may potentially reduce volatility and stabilise the portfolio's performance, especially in turbulent market conditions.

Basic Rule

Mitigate the risk of volatility in a portfolio by including different asset classes with returns that are less correlated with each other.

High Risk, High Return

Equity market potentially offers a higher return, but it also comes with a higher risk.

Including another asset class, for example bonds, may potentially reduce a portfolio’s overall risk.

Great that you understand more about diversification! Adding global bonds to a domestic equities portfolio can potentially provide valuable diversification benefits, especially during market crisis. Let's go through some examples.

Source: Bloomberg, Global Financia Crisis data is from 08 Oct 2007 to 09 Mar 2009, Equity refers to Stock Exchange of Thailand SET Index. Bond refers to Bloomberg Global-Aggregate Total Return Index Value Unhedged USD. Thailand equity performance is calculated in THB while the bond performance is calculated in USD; on a last price-to-last price basis. SGD based investors are exposed to non-SGD foreign exchange fluctuations. The information above is provided only for illustrative purposes to demonstrate diversification concept, it should not be considered a recommendation to purchase or sell any particular index or strategy or an investment advice. Past performance, or any prediction, projection or forecast, is not indicative of future performance.
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Thailand

Volatility (%)

15
13
11
9
7
5
3
100:0
Portfolio volatility for 100% equity to 0% bond ratio is 14.7%.
90:10
Portfolio volatility for 90% equity to 10% bond ratio is 13.3%.
80:20
Portfolio volatility for 80% equity to 20% bond ratio is 11.9%.
70:30
Portfolio volatility for 70% equity to 30% bond ratio is 10.4%.
60:40
Portfolio volatility for 60% equity to 40% bond ratio is 9.0%.
50:50
Portfolio volatility for 50% equity to 50% bond ratio is 7.7%.
40:60
Portfolio volatility for 40% equity to 60% bond ratio is 6.4%.
30:70
Portfolio volatility for 30% equity to 70% bond ratio is 5.2%.
20:80
Portfolio volatility for 20% equity to 80% bond ratio is 4.2%.
10:90
Portfolio volatility for 10% equity to 90% bond ratio is 3.6%.
12
10
8
6
4
2
100:0
Portfolio volatility for 100% equity to 0% bond ratio is 11.9%.
90:10
Portfolio volatility for 90% equity to 10% bond ratio is 10.7%.
80:20
Portfolio volatility for 80% equity to 20% bond ratio is 9.5%.
70:30
Portfolio volatility for 70% equity to 30% bond ratio is 8.3%.
60:40
Portfolio volatility for 60% equity to 40% bond ratio is 7.1%.
50:50
Portfolio volatility for 50% equity to 50% bond ratio is 6.0%.
40:60
Portfolio volatility for 40% equity to 60% bond ratio is 4.9%.
30:70
Portfolio volatility for 30% equity to 70% bond ratio is 3.8%.
20:80
Portfolio volatility for 20% equity to 80% bond ratio is 3.0%.
10:90
Portfolio volatility for 10% equity to 90% bond ratio is 2.6%.
33
29
25
19
15
10
6
100:0
Portfolio volatility for 100% equity to 0% bond ratio is 32.6%.
90:10
Portfolio volatility for 90% equity to 10% bond ratio is 29.4%.
80:20
Portfolio volatility for 80% equity to 20% bond ratio is 26.1%.
70:30
Portfolio volatility for 70% equity to 30% bond ratio is 22.9%.
60:40
Portfolio volatility for 60% equity to 40% bond ratio is 19.8%.
50:50
Portfolio volatility for 50% equity to 50% bond ratio is 16.7%.
40:60
Portfolio volatility for 40% equity to 60% bond ratio is 13.7%.
30:70
Portfolio volatility for 30% equity to 70% bond ratio is 10.9%.
20:80
Portfolio volatility for 20% equity to 80% bond ratio is 8.5%.
10:90
Portfolio volatility for 10% equity to 90% bond ratio is 6.9%.
-0.8
-2
-4
-5
-8
-10
-12
100:0
Portfolio drawdown for 100% equity to 0% bond ratio is -11.3%.
90:10
Portfolio drawdown for 90% equity to 10% bond ratio is -10.2%.
80:20
Portfolio drawdown for 80% equity to 20% bond ratio is -9.0%.
70:30
Portfolio drawdown for 70% equity to 30% bond ratio is -7.8%.
60:40
Portfolio drawdown for 60% equity to 40% bond ratio is -6.6%.
50:50
Portfolio drawdown for 50% equity to 50% bond ratio is -5.5%.
40:60
Portfolio drawdown for 40% equity to 60% bond ratio is -4.3%.
30:70
Portfolio drawdown for 30% equity to 70% bond ratio is -3.1%.
20:80
Portfolio drawdown for 20% equity to 80% bond ratio is -1.9%.
10:90
Portfolio drawdown for 10% equity to 90% bond ratio is -0.8%.
1.2
0.7
0.3
-0.1
-0.6
-1.0
-1.5
100:0
Portfolio drawdown for 100% equity to 0% bond ratio is -1.5%.
90:10
Portfolio drawdown for 90% equity to 10% bond ratio is -1.2%.
80:20
Portfolio drawdown for 80% equity to 20% bond ratio is -0.9%.
70:30
Portfolio drawdown for 70% equity to 30% bond ratio is -0.6%.
60:40
Portfolio drawdown for 60% equity to 40% bond ratio is -0.3%.
50:50
Portfolio drawdown for 50% equity to 50% bond ratio is 0.0%.
40:60
Portfolio drawdown for 40% equity to 60% bond ratio is 0.3%.
30:70
Portfolio drawdown for 30% equity to 70% bond ratio is 0,6%.
20:80
Portfolio drawdown for 20% equity to 80% bond ratio is 0,9%.
10:90
Portfolio drawdown for 10% equity to 90% bond ratio is 1,2%.
-6.2
-11.8
-17.4
-23.0
-28.6
-34.2
-39.8
-45.4
-51.0
-56.6
-62.3
100:0
Portfolio drawdown for 100% equity to 0% bond ratio is -62.3%.
90:10
Portfolio drawdown for 90% equity to 10% bond ratio is -56.1%.
80:20
Portfolio drawdown for 80% equity to 20% bond ratio is -49.9%.
70:30
Portfolio drawdown for 70% equity to 30% bond ratio is -43.6%.
60:40
Portfolio drawdown for 60% equity to 40% bond ratio is -37.4%.
50:50
Portfolio drawdown for 50% equity to 50% bond ratio is -31.2%.
40:60
Portfolio drawdown for 40% equity to 60% bond ratio is -24.9%.
30:70
Portfolio drawdown for 30% equity to 70% bond ratio is -18.7%.
20:80
Portfolio drawdown for 20% equity to 80% bond ratio is -12.5%.
10:90
Portfolio drawdown for 10% equity to 90% bond ratio is -6.2%.

Equity: Bond Ratio

Read the full discloser here
Source: Bloomberg, Global Financial Crisis data is from 08 Oct 2007 to 09 Mar 2009, Equity refers to FTSE Bursa Malaysia KLCI Index - Kuala Lumpur Composite Index. Bond refers to Bloomberg Global-Aggregate Total Return Index Value Unhedged USD. Malaysia equity performance is calculated in MYR while the bond performance is calculated in USD; on a last price-to-last price basis. SGD based investors are exposed to non-SGD foreign exchange fluctuations. The information above is provided only for illustrative purposes to demonstrate diversification concept, it should not be considered a recommendation to purchase or sell any particular index or strategy or an investment advice. Past performance, or any prediction, projection or forecast, is not indicative of future performance.
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Malaysia

Drawdown (%)

9.3
8.3
7.3
6.3
5.3
4.3
3.4
100:0
Portfolio volatility for 100% equity to 0% bond ratio is 9.3%.
90:10
Portfolio volatility for 90% equity to 10% bond ratio is 8.4%.
80:20
Portfolio volatility for 80% equity to 20% bond ratio is 7.5%.
70:30
Portfolio volatility for 70% equity to 30% bond ratio is 6.7%.
60:40
Portfolio volatility for 60% equity to 40% bond ratio is 5.8%.
50:50
Portfolio volatility for 50% equity to 50% bond ratio is 5.0%.
40:60
Portfolio volatility for 40% equity to 60% bond ratio is 4.4%.
30:70
Portfolio volatility for 30% equity to 70% bond ratio is 3.8%.
20:80
Portfolio volatility for 20% equity to 80% bond ratio is 3.5%.
10:90
Portfolio volatility for 10% equity to 90% bond ratio is 3.4%.
10.6
8.9
7.3
5.6
4.0
2.4
100:0
Portfolio volatility for 100% equity to 0% bond ratio is 10.6%.
90:10
Portfolio volatility for 90% equity to 10% bond ratio is 7.9%.
80:20
Portfolio volatility for 80% equity to 20% bond ratio is 7.0%.
70:30
Portfolio volatility for 70% equity to 30% bond ratio is 6.1%.
60:40
Portfolio volatility for 60% equity to 40% bond ratio is 5.2%.
50:50
Portfolio volatility for 50% equity to 50% bond ratio is 4.4%.
40:60
Portfolio volatility for 40% equity to 60% bond ratio is 3.6%.
30:70
Portfolio volatility for 30% equity to 70% bond ratio is 3.0%.
20:80
Portfolio volatility for 20% equity to 80% bond ratio is 2.6%.
10:90
Portfolio volatility for 10% equity to 90% bond ratio is 2.4%.
18.7
16.7
14.7
12.7
10.7
8.7
6.7
100:0
Portfolio volatility for 100% equity to 0% bond ratio is 18.7%.
90:10
Portfolio volatility for 90% equity to 10% bond ratio is 17.0%.
80:20
Portfolio volatility for 80% equity to 20% bond ratio is 15.3%.
70:30
Portfolio volatility for 70% equity to 30% bond ratio is 13.6%.
60:40
Portfolio volatility for 60% equity to 40% bond ratio is 12.0%.
50:50
Portfolio volatility for 50% equity to 50% bond ratio is 10.5%.
40:60
Portfolio volatility for 40% equity to 60% bond ratio is 9.1%.
30:70
Portfolio volatility for 30% equity to 70% bond ratio is 8.0%.
20:80
Portfolio volatility for 20% equity to 80% bond ratio is 7.1%.
10:90
Portfolio volatility for 10% equity to 90% bond ratio is 6.7%.
-0.4
-0.8
-1.2
-1.6
-2.0
-2.4
-2.8
-3.2
-3.6
-4.0
-4.4
-4.8
-5.2
-5.6
-6.0
-6.4
-6.8
-7.2
100:0
Portfolio drawdown for 100% equity to 0% bond ratio is -7.2%.
90:10
Portfolio drawdown for 90% equity to 10% bond ratio is -6.5%.
80:20
Portfolio drawdown for 80% equity to 20% bond ratio is -5.7%.
70:30
Portfolio drawdown for 70% equity to 30% bond ratio is -4.9%.
60:40
Portfolio drawdown for 60% equity to 40% bond ratio is -4.2%.
50:50
Portfolio drawdown for 50% equity to 50% bond ratio is -3.4%.
40:60
Portfolio drawdown for 40% equity to 60% bond ratio is -2.7%.
30:70
Portfolio drawdown for 30% equity to 70% bond ratio is -1.9%.
20:80
Portfolio drawdown for 20% equity to 80% bond ratio is -1.1%.
10:90
Portfolio drawdown for 10% equity to 90% bond ratio is -0.4%.
0.9
0.0
-0.7
-1.5
-2.3
-3.2
100:0
Portfolio drawdown for 100% equity to 0% bond ratio is -1.5%.
90:10
Portfolio drawdown for 90% equity to 10% bond ratio is -3.2%.
80:20
PPortfolio drawdown for 80% equity to 20% bond ratio is -2.7%.
70:30
Portfolio drawdown for 70% equity to 30% bond ratio is -2.1%.
60:40
Portfolio drawdown for 60% equity to 40% bond ratio is -1.6%.
50:50
Portfolio drawdown for 50% equity to 50% bond ratio is -1.1%.
40:60
Portfolio drawdown for 40% equity to 60% bond ratio is -0.6%.
30:70
Portfolio drawdown for 30% equity to 70% bond ratio is -0.1%.
20:80
Portfolio drawdown for 20% equity to 80% bond ratio is 0.4%.
10:90
Portfolio drawdown for 10% equity to 90% bond ratio is 0.9%.
-3.9
-7.4
-10.9
-14.4
-18.0
-21.5
-25.0
-28.6
-32.1
-35.6
-39.2
100:0
Portfolio drawdown for 100% equity to 0% bond ratio is -39.2%.
90:10
Portfolio drawdown for 90% equity to 10% bond ratio is -35.3%.
80:20
Portfolio drawdown for 80% equity to 20% bond ratio is -31.3%.
70:30
Portfolio drawdown for 70% equity to 30% bond ratio is -27.4%.
60:40
Portfolio drawdown for 60% equity to 40% bond ratio is -23.5%.
50:50
Portfolio drawdown for 50% equity to 50% bond ratio is -19.6%.
40:60
Portfolio drawdown for 40% equity to 60% bond ratio is -15.7%.
30:70
Portfolio drawdown for 30% equity to 70% bond ratio is -11.8%.
20:80
PPortfolio drawdown for 20% equity to 80% bond ratio is -7.8%.
10:90
Portfolio drawdown for 10% equity to 90% bond ratio is -3.9%.

Equity: Bond Ratio

Read the full discloser here
Source: Bloomberg, Global Financial Crisis data is from 08 Oct 2007 to 09 Mar 2009, Equity refers to Jakarta Composite Index. Bond refers to Bloomberg Global-Aggregate Total Return Index Value Unhedged USD. Indonesia equity performance is calculated in IDR while the bond performance is calculated in USD; on a last price-to-last price basis. SGD based investors are exposed to non-SGD foreign exchange fluctuations. The information above is provided only for illustrative purposes to demonstrate diversification concept, it should not be considered a recommendation to purchase or sell any particular index or strategy or an investment advice. Past performance, or any prediction, projection or forecast, is not indicative of future performance.
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Indonesia

Drawdown (%)

16.6
15.6
14.6
13.6
12.6
11.6
10.6
9.6
8.6
7.6
6.6
5.6
4.6
3.6
100:0
Portfolio volatility for 100% equity to 0% bond ratio is 16.6%.
90:10
Portfolio volatility for 90% equity to 10% bond ratio is 14.9%.
80:20
Portfolio volatility for 80% equity to 20% bond ratio is 13.3%.
70:30
Portfolio volatility for 70% equity to 30% bond ratio is 11.7%.
60:40
Portfolio volatility for 60% equity to 40% bond ratio is 10.1%.
50:50
Portfolio volatility for 50% equity to 50% bond ratio is 8.5%.
40:60
Portfolio volatility for 40% equity to 60% bond ratio is 7.0%.
30:70
Portfolio volatility for 30% equity to 70% bond ratio is 5.6%.
20:80
Portfolio volatility for 20% equity to 80% bond ratio is 4.4%.
10:90
Portfolio volatility for 10% equity to 90% bond ratio is 3.6%.
10.4
8.4
6.4
4.4
2.5
100:0
Portfolio volatility for 100% equity to 0% bond ratio is 10.4%.
90:10
Portfolio volatility for 90% equity to 10% bond ratio is 9.3%.
80:20
Portfolio volatility for 80% equity to 20% bond ratio is 8.3%.
70:30
Portfolio volatility for 70% equity to 30% bond ratio is 7.2%.
60:40
Portfolio volatility for 60% equity to 40% bond ratio is 6.2%.
50:50
Portfolio volatility for 50% equity to 50% bond ratio is 5.3%.
40:60
Portfolio volatility for 40% equity to 60% bond ratio is 4.3%.
30:70
Portfolio volatility for 30% equity to 70% bond ratio is 3.5%.
20:80
Portfolio volatility for 20% equity to 80% bond ratio is 2.8%.
10:90
Portfolio volatility for 10% equity to 90% bond ratio is 2.5%.
20.5
15.9
11.3
6.7
100:0
Portfolio volatility for 100% equity to 0% bond ratio is 20.5%.
90:10
Portfolio volatility for 90% equity to 10% bond ratio is 18.5%.
80:20
Portfolio volatility for 80% equity to 20% bond ratio is 16.6%.
70:30
Portfolio volatility for 70% equity to 30% bond ratio is 14.8%.
60:40
Portfolio volatility for 60% equity to 40% bond ratio is 13.0%.
50:50
Portfolio volatility for 50% equity to 50% bond ratio is 11.3%.
40:60
Portfolio volatility for 40% equity to 60% bond ratio is 9.7%.
30:70
Portfolio volatility for 30% equity to 70% bond ratio is 8.3%.
20:80
Portfolio volatility for 20% equity to 80% bond ratio is 7.3%.
10:90
Portfolio volatility for 10% equity to 90% bond ratio is 6.7%.
-0.7
-2.6
-4.5
-6.5
-8.4
-10.4
100:0
Portfolio drawdown for 100% equity to 0% bond ratio is -10.4%.
90:10
Portfolio drawdown for 90% equity to 10% bond ratio is -8.3%.
80:20
Portfolio drawdown for 80% equity to 20% bond ratio is -8.2%.
70:30
Portfolio drawdown for 70% equity to 30% bond ratio is -7.1%.
60:40
Portfolio drawdown for 60% equity to 40% bond ratio is -6.0%.
50:50
Portfolio drawdown for 50% equity to 50% bond ratio is -5.0%.
40:60
Portfolio drawdown for 40% equity to 60% bond ratio is -3.9%.
30:70
Portfolio drawdown for 30% equity to 70% bond ratio is -2.8%.
20:80
Portfolio drawdown for 20% equity to 80% bond ratio is -1.7%.
10:90
Portfolio drawdown for 10% equity to 90% bond ratio is -0.7%.
-0.1
-0.6
-1.1
-1.6
-2.1
-2.6
-3.1
-3.6
100:0
Portfolio drawdown for 100% equity to 0% bond ratio is -3.6%.
90:10
Portfolio drawdown for 90% equity to 10% bond ratio is -3.1%.
80:20
Portfolio drawdown for 80% equity to 20% bond ratio is -2.6%.
70:30
Portfolio drawdown for 70% equity to 30% bond ratio is -2.1%.
60:40
Portfolio drawdown for 60% equity to 40% bond ratio is -1.6%.
50:50
Portfolio drawdown for 50% equity to 50% bond ratio is -1.1%.
40:60
Portfolio drawdown for 40% equity to 60% bond ratio is -0.6%.
30:70
Portfolio drawdown for 30% equity to 70% bond ratio is -0.1%.
20:80
Portfolio drawdown for 20% equity to 80% bond ratio is 0.4%.
10:90
Portfolio drawdown for 10% equity to 90% bond ratio is 0.9%.
-13.6
-18.4
-23.3
-28.1
-33.0
-37.9
-42.7
-47.6
-52.4
-57.3
-62.2
100:0
Portfolio drawdown for 100% equity to 0% bond ratio is -62.2%.
90:10
Portfolio drawdown for 90% equity to 10% bond ratio is -56.8%.
80:20
Portfolio drawdown for 80% equity to 20% bond ratio is -51.4%.
70:30
Portfolio drawdown for 70% equity to 30% bond ratio is -46.0%.
60:40
Portfolio drawdown for 60% equity to 40% bond ratio is -40.6%.
50:50
Portfolio drawdown for 50% equity to 50% bond ratio is -35.2%.
40:60
Portfolio drawdown for 40% equity to 60% bond ratio is -29.8%.
30:70
Portfolio drawdown for 30% equity to 70% bond ratio is -24.4%.
20:80
Portfolio drawdown for 20% equity to 80% bond ratio is -19.0%.
10:90
Portfolio drawdown for 10% equity to 90% bond ratio is -13.6%.

Equity: Bond Ratio

Read the full discloser here
Source: Bloomberg, Global Financial Crisis data is from 08 Oct 2007 to 09 Mar 2009, Equity refers to 
Philippines Stock Exchange PSEi Index. Bond refers to Bloomberg Global-Aggregate Total Return Index Value Unhedged USD. Philippines equity performance is calculated in PHP while the bond performance is calculated in USD; on a last price-to-last price basis. SGD based investors are exposed to non-SGD foreign exchange fluctuations. The information above is provided only for illustrative purposes to demonstrate diversification concept, it should not be considered a recommendation to purchase or sell any particular index or strategy or an investment advice. Past performance, or any prediction, projection or forecast, is not indicative of future performance.
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Philippines

Drawdown (%)

14.4
12.6
10.8
9.0
7.2
5.4
3.6
100:0
Portfolio volatility for 100% equity to 0% bond ratio is 14.4%.
90:10
Portfolio volatility for 90% equity to 10% bond ratio is 13.0%.
80:20
Portfolio volatility for 80% equity to 20% bond ratio is 11.6%.
70:30
Portfolio volatility for 70% equity to 30% bond ratio is 10.3%.
60:40
Portfolio volatility for 60% equity to 40% bond ratio is 8.9%.
50:50
Portfolio volatility for 50% equity to 50% bond ratio is 7.6%.
40:60
Portfolio volatility for 40% equity to 60% bond ratio is 6.3%.
30:70
Portfolio volatility for 30% equity to 70% bond ratio is 5.2%.
20:80
Portfolio volatility for 20% equity to 80% bond ratio is 4.3%.
10:90
Portfolio volatility for 10% equity to 90% bond ratio is 3.6%.
11.8
9.9
8.1
6.3
4.5
2.7
100:0
Portfolio volatility for 100% equity to 0% bond ratio is 11.8%.
90:10
Portfolio volatility for 90% equity to 10% bond ratio is 10.6%.
80:20
Portfolio volatility for 80% equity to 20% bond ratio is 9.4%.
70:30
Portfolio volatility for 70% equity to 30% bond ratio is 8.3%.
60:40
Portfolio volatility for 60% equity to 40% bond ratio is 7.1%.
50:50
Portfolio volatility for 50% equity to 50% bond ratio is 6.0%.
40:60
Portfolio volatility for 40% equity to 60% bond ratio is 5.0%.
30:70
Portfolio volatility for 30% equity to 70% bond ratio is 4.0%.
20:80
Portfolio volatility for 20% equity to 80% bond ratio is 3.2%.
10:90
Portfolio volatility for 10% equity to 90% bond ratio is 2.7%.
30.6
25.8
21.0
16.2
11.4
6.7
100:0
Portfolio volatility for 100% equity to 0% bond ratio is 30.6%.
90:10
Portfolio volatility for 90% equity to 10% bond ratio is 27.6%.
80:20
Portfolio volatility for 80% equity to 20% bond ratio is 24.6%.
70:30
Portfolio volatility for 70% equity to 30% bond ratio is 21.7%.
60:40
Portfolio volatility for 60% equity to 40% bond ratio is 18.9%.
50:50
Portfolio volatility for 50% equity to 50% bond ratio is 16.0%.
40:60
Portfolio volatility for 40% equity to 60% bond ratio is 13.3%.
30:70
Portfolio volatility for 30% equity to 70% bond ratio is 10.8%.
20:80
Portfolio volatility for 20% equity to 80% bond ratio is 8.7%.
10:90
Portfolio volatility for 10% equity to 90% bond ratio is 7.2%.
1.9
-2.4
-6.7
-11.0
100:0
Portfolio drawdown for 100% equity to 0% bond ratio is -11.0%.
90:10
Portfolio drawdown for 90% equity to 10% bond ratio is -9.8%.
80:20
Portfolio drawdown for 80% equity to 20% bond ratio is -8.7%.
70:30
Portfolio drawdown for 70% equity to 30% bond ratio is -7.6%.
60:40
Portfolio drawdown for 60% equity to 40% bond ratio is -6.4%.
50:50
Portfolio drawdown for 50% equity to 50% bond ratio is -5.3%.
40:60
Portfolio drawdown for 40% equity to 60% bond ratio is -4.1%.
30:70
Portfolio drawdown for 30% equity to 70% bond ratio is -3.0%.
20:80
Portfolio drawdown for 20% equity to 80% bond ratio is -1.9%.
10:90
Portfolio drawdown for 10% equity to 90% bond ratio is -0.7%.
-0.2
-1.1
-2.0
-2.9
-3.9
100:0
Portfolio drawdown for 100% equity to 0% bond ratio is -3.9%.
90:10
Portfolio drawdown for 90% equity to 10% bond ratio is -3.4%.
80:20
Portfolio drawdown for 80% equity to 20% bond ratio is -2.8%.
70:30
Portfolio drawdown for 70% equity to 30% bond ratio is -2.3%.
60:40
Portfolio drawdown for 60% equity to 40% bond ratio is -1.8%.
50:50
Portfolio drawdown for 50% equity to 50% bond ratio is -1.2%.
40:60
Portfolio drawdown for 40% equity to 60% bond ratio is -0.7%.
30:70
Portfolio drawdown for 30% equity to 70% bond ratio is -0.2%.
20:80
Portfolio drawdown for 20% equity to 80% bond ratio is 0.4%.
10:90
Portfolio drawdown for 10% equity to 90% bond ratio is 0.9%.
-6.6
-12.5
-18.5
-24.4
-30.4
-36.4
-42.3
-48.3
-54.2
-60.2
-66.2
100:0
Portfolio drawdown for 100% equity to 0% bond ratio is -66.2%.
90:10
Portfolio drawdown for 90% equity to 10% bond ratio is -59.6%.
80:20
Portfolio drawdown for 80% equity to 20% bond ratio is -53.0%.
70:30
Portfolio drawdown for 70% equity to 30% bond ratio is -46.4%.
60:40
Portfolio drawdown for 60% equity to 40% bond ratio is -39.7%.
50:50
Portfolio drawdown for 50% equity to 50% bond ratio is -33.1%.
40:60
Portfolio drawdown for 40% equity to 60% bond ratio is -26.5%.
30:70
Portfolio drawdown for 30% equity to 70% bond ratio is -19.9%.
20:80
Portfolio drawdown for 20% equity to 80% bond ratio is -13.2%.
10:90
Portfolio drawdown for 10% equity to 90% bond ratio is -6.6%.

Equity: Bond Ratio

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Source: Bloomberg, Global Financial Crisis data is from 08 Oct 2007 to 09 Mar 2009, Equity refers to Straits Times Index STI. Bond refers to Bloomberg Global-Aggregate Total Return Index Value Unhedged USD. Singapore equity performance is calculated in SGD while the bond performance is calculated in USD; on a last price-to-last price basis. SGD based investors are exposed to non-SGD foreign exchange fluctuations. The information above is provided only for illustrative purposes to demonstrate diversification concept, it should not be considered a recommendation to purchase or sell any particular index or strategy or an investment advice. Past performance, or any prediction, projection or forecast, is not indicative of future performance.
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Singapore

Drawdown (%)

15.4
13.4
11.4
9.4
7.4
5.4
3.5
100:0
Portfolio volatility for 100% equity to 0% bond ratio is 15.4%.
90:10
Portfolio volatility for 90% equity to 10% bond ratio is 13.9%.
80:20
Portfolio volatility for 80% equity to 20% bond ratio is 12.3%.
70:30
Portfolio volatility for 70% equity to 30% bond ratio is 10.8%.
60:40
Portfolio volatility for 60% equity to 40% bond ratio is 9.3%.
50:50
Portfolio volatility for 50% equity to 50% bond ratio is 7.9%.
40:60
Portfolio volatility for 40% equity to 60% bond ratio is 6.5%.
30:70
Portfolio volatility for 30% equity to 70% bond ratio is 5.2%.
20:80
Portfolio volatility for 20% equity to 80% bond ratio is 4.1%.
10:90
Portfolio volatility for 10% equity to 90% bond ratio is 3.5%.
11.9
10.0
8.1
6.2
4.3
2.5
100:0
Portfolio volatility for 100% equity to 0% bond ratio is 11.9%.
90:10
Portfolio volatility for 90% equity to 10% bond ratio is 9.5%.
80:20
Portfolio volatility for 80% equity to 20% bond ratio is 8.4%.
70:30
Portfolio volatility for 70% equity to 30% bond ratio is 7.3%.
60:40
Portfolio volatility for 60% equity to 40% bond ratio is 6.3%.
50:50
Portfolio volatility for 50% equity to 50% bond ratio is 5.3%.
40:60
Portfolio volatility for 40% equity to 60% bond ratio is 4.3%.
30:70
Portfolio volatility for 30% equity to 70% bond ratio is 3.4%.
20:80
Portfolio volatility for 20% equity to 80% bond ratio is 2.8%.
10:90
Portfolio volatility for 10% equity to 90% bond ratio is 2.5%.
20.1
15.5
10.9
6.4
100:0
Portfolio volatility for 100% equity to 0% bond ratio is 20.1%.
90:10
Portfolio volatility for 90% equity to 10% bond ratio is 18.1%.
80:20
Portfolio volatility for 80% equity to 20% bond ratio is 16.1%.
70:30
Portfolio volatility for 70% equity to 30% bond ratio is 14.2%.
60:40
Portfolio volatility for 60% equity to 40% bond ratio is 12.3%.
50:50
Portfolio volatility for 50% equity to 50% bond ratio is 10.6%.
40:60
Portfolio volatility for 40% equity to 60% bond ratio is 9.0%.
30:70
Portfolio volatility for 30% equity to 70% bond ratio is 7.6%.
20:80
Portfolio volatility for 20% equity to 80% bond ratio is 6.7%.
10:90
Portfolio volatility for 10% equity to 90% bond ratio is 6.4%.
-1.1
-5.5
-9.9
-14.3
100:0
Portfolio drawdown for 100% equity to 0% bond ratio is -14.3%.
90:10
Portfolio drawdown for 90% equity to 10% bond ratio is -12.8%.
80:20
Portfolio drawdown for 80% equity to 20% bond ratio is -11.4%.
70:30
Portfolio drawdown for 70% equity to 30% bond ratio is -9.9%.
60:40
Portfolio drawdown for 60% equity to 40% bond ratio is -8.4%.
50:50
Portfolio drawdown for 50% equity to 50% bond ratio is -6.9%.
40:60
Portfolio drawdown for 40% equity to 60% bond ratio is -5.5%.
30:70
Portfolio drawdown for 30% equity to 70% bond ratio is -4.0%.
20:80
Portfolio drawdown for 20% equity to 80% bond ratio is -2.5%.
10:90
Portfolio drawdown for 10% equity to 90% bond ratio is -1.1%.
0.9
-0.0
-0.9
-1.9
-2.8
-3.8
100:0
Portfolio drawdown for 100% equity to 0% bond ratio is -1.5%.
90:10
Portfolio drawdown for 90% equity to 10% bond ratio is -3.8%.
80:20
Portfolio drawdown for 80% equity to 20% bond ratio is -3.2%.
70:30
Portfolio drawdown for 70% equity to 30% bond ratio is -2.6%.
60:40
Portfolio drawdown for 60% equity to 40% bond ratio is -2.0%.
50:50
Portfolio drawdown for 50% equity to 50% bond ratio is -1.4%.
40:60
Portfolio drawdown for 40% equity to 60% bond ratio is -0.9%.
30:70
Portfolio drawdown for 30% equity to 70% bond ratio is -0.3%.
20:80
Portfolio drawdown for 20% equity to 80% bond ratio is 0.3%.
10:90
Portfolio drawdown for 10% equity to 90% bond ratio is 0.9%.
-5.9
-11.2
-16.5
-21.8
-27.2
-32.5
-37.8
-43.2
-48.5
-53.8
-59.2
100:0
Portfolio drawdown for 100% equity to 0% bond ratio is -59.2%.
90:10
Portfolio drawdown for 90% equity to 10% bond ratio is -53.3%.
80:20
Portfolio drawdown for 80% equity to 20% bond ratio is -47.4%.
70:30
Portfolio drawdown for 70% equity to 30% bond ratio is -41.4%.
60:40
Portfolio drawdown for 60% equity to 40% bond ratio is -35.5%.
50:50
Portfolio drawdown for 50% equity to 50% bond ratio is -29.6%.
40:60
Portfolio drawdown for 40% equity to 60% bond ratio is -23.7%.
30:70
Portfolio drawdown for 30% equity to 70% bond ratio is -17.8%.
20:80
Portfolio drawdown for 20% equity to 80% bond ratio is -11.8%.
10:90
Portfolio drawdown for 10% equity to 90% bond ratio is -5.9%.

Equity: Bond Ratio

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South-East Asia

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Great that you understand more about diversification! Adding global bonds to a domestic equities portfolio can potentially provide valuable diversification benefits, especially during market crisis. Let's go through some examples.

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Different asset classes tend to perform differently under various market conditions.

By diversifying across asset classes, you can potentially reduce the impact of a single asset class performing poorly on your overall portfolio.

When one asset class experiences a downturn, other asset classes may potentially be performing better to minimise losses.

Diversification may also help smoothen the volatility of investment returns over time.

Since different asset classes have different return patterns, combining them in a diversified portfolio can potentially provide more stable returns compared to relying on a single asset class.

With the illustration above, do you think you have a good grasp on the concept of diversification?

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