The advantages of diversification between asset classes are similar to the advantages of diversification between stocks. The figure below shows the annual performance (in percent) of various different asset classes each depicted by a grey line (the asset classes are described in the figure legend). The single green coloured line represents a weighted average of the all the asset classes combined together in one portfolio (with a simple annual rebalancing schedule). Note how smooth the green line appears, reflecting a reduction in return variance compared to any single grey line.

(You can click on the figure for a larger view)

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