In my role as CIO，I get to meet different kinds of investors. There are those with diversified portfolios of course，but many clients I speak to have a very clear bias towards one asset class: either equities or bonds. The biggest challenge for investors of all stripes this year is that there have been few places to hide. Global equities have fallen almost 20%，while the ramp up in interest rate hike expectations has also hit bond markets hard. Gold offered some respite for the first couple of months，but the precious metal has fallen 10% from those highs. The good news is that the simultaneous decline in asset classes could be a silver lining for investors when it comes to planning the next course.

What we saw this year is rare. Normally，high quality bonds appreciate in value if equities fall sharply. Equities usually fall at a time when people are becoming more concerned about slowing economic growth，which usually encourages central banks to ease monetary policy，which in turn pulls bond yields lower (and bond prices higher). Meanwhile，when bond prices are falling (i.e. bond yields are rising)，investors are normally becoming more positive on the outlook for growth，which is positive for corporate earnings growth and equity prices.

Silver lining for non-diversified investors

In one way，this inverse relationship between stocks and bonds is positive for investors as it means that losses in one part of the portfolio are offset，at least to some degree，by gains elsewhere in the portfolio. Indeed，this is the very reason why we recommend a diversified portfolio – diversification enables investors to smooth the performance of their investment and reduce the risks of being consumed by the urge to sell at exactly the wrong time.