Why is portfolio diversification still vital?

During the recent market downturn, many investors learnt the hard way that it is impossible to diversify away the risk in a portfolio completely. The lesson was made worse by the fact that, as virtually all financial assets declined in unison, effectiveness of diversification declined just when investors most needed its benefits. However, while diversification may not be perfect, it still has a vital role to play in the construction of an effective portfolio. It is our role as investment managers to ensure that clients understand the limitations of diversification and the risks that rema...