What is Diversfification?

Crystal Mirkazemi | WBN News – Vancouver | March 26, 2026 Editor: Karalee Greer Subscription to WBN and being a Contributor is Free.

Diversification is one of the most widely used terms in investing, yet one of the least understood.

At its core, diversification is the practice of spreading investments across different asset classes, sectors, and strategies to reduce overall risk. But it is not simply about owning more, it is about owning assets that behave differently across market conditions.

Because markets move in cycles, not in straight lines. So, how do you protect the assets to grow for a long time?

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History makes this clear.

The S&P 500, often used as a benchmark for equity performance, has delivered approximately 9–10% average annual returns over the long term. But those returns are not consistent year to year.

Since 1928:

The market has experienced frequent corrections of 10% or more
Bear markets of 20%+ declines occur regularly
Some of the strongest annual gains have followed the sharpest declines

For example, after the 2008 financial crisis, the S&P 500 declined by over 37% in a single year. Yet in the years that followed, it produced one of the longest bull markets in history.

More recently, during the COVID-19 market crash 2020, markets dropped over 30% within weeks, only to recover rapidly and reach new highs.

The implication is not just about growth.

It is about behavior.

Investors who remained invested through these periods compared to those who reacted to short-term volatility have participated in the recovery. Those who exited often missed the strongest rebound periods, which tend to occur in concentrated timeframes.

This is where diversification plays a critical role.

A portfolio concentrated solely in equities may achieve strong long-term returns, but it is also exposed to significant volatility. Diversification introduces assets that respond differently, from fixed income, alternatives, and cash-flow strategies by helping to reduce the impact of downturns while maintaining exposure to growth.

Because the challenge is not identifying that markets grow over time.

It is staying invested long enough to experience that growth.

Diversification supports that discipline. It reduces the emotional pressure created by volatility and creates a structure that investors can maintain through different market environments.

Without it, even strong long-term strategies can fail. Neccesarily not because of poor returns, but because they were not sustainable for the investor holding them.

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Crystal Mirkazemi | WBN News – Vancouver

My mission is to empower you to think big and build solutions for your family and business. Every milestone of life's journey is a chance to appreciate a financial plan. As I always say: Your most significant asset to be independent lies in your attitude towards money.

LinkedIn: https://www.linkedin.com/in/crystalmirkazemi/

Contact me here: wbn.cwc@gmail.com

Editor: Karalee Greer Subscription to WBN and being a Contributor is Free.

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