I think that if one is are drawing a pension, have a modest balance and are earning enough to live on, diversity is a strategy to protect capital. This is important in the event of a downturn where losses from a high investment in stocks may be such that there will never be a recovery of capital. This is not so important with higher balances.
This is an important time for many of us who are drawing a pension, do we stay heavily invested in stocks, assuming the run will continue or do we take some profit? Do we diversify to protect capital? There have been some useful comments on diversity in some other threads, some of which I am following up. I think many in pension stage are sitting on a bit more cash now that a few years ago, myself included, taking a lower return to sleep at night. I estimate the cost to me of doing this is about $30,000pa assuming the run continues.
In addition to asset class diversity, there is stock selection. As some of the high dividend stocks have lost value (eg UGL, BKN, MYR etc), many portfolios are now overweight in bank stocks, adding to the risk.
I feel diversity is important for some and perhaps not so for others who are more willing to accept the risks and consequences.
In accumulation phase, a downturn is not so critical, there is time to take advantage of a recovery and make further contributions.
