Stock investors love a bull market. But what about when the stock market heads south, like it did less than a decade ago, during the Great Recession? As an investor, would you be content to enjoy much, but perhaps not all, of the gains a bull market provides, while also gaining an extra measure of protection to preserve the value of your assets in the face of a stock market decline? As someone who has worked long and hard to build a financial nest egg, would you prefer that nest egg got a smoother, more predictable ride rather than subjecting it entirely to the volatile whims of the stock market?
The dual priorities of growing your assets while also protecting them from downside risk represent the premise behind, and the justification for, the fundamental investing concept known as diversification.