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Investing Specialists

Cash, Core and Core-Plus Bond Funds, and Other 'Meh' Diversifiers

Which asset types best diversify equity risk? We put additional investment types to the test.

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Cash was the best-performing holding in many investors' portfolios last year--and in my model portfolios, too. Even as the U.S. stock market dropped 5% and the Bloomberg Barclays U.S. Aggregate Bond Index barely clung to a gain, investors in money market funds and other cash products pocketed yields of as much as 2%. And because cash investments don't lose value, cash investors didn't experience the net asset value shrinkage that many bond investors ran into last year.

But despite its heroic showing in 2018, has cash delivered as a diversifier for stocks over longer time frames? Not as much as Treasury bonds or the Aggregate Index have, based on a follow-up look at data depicting the correlations between stocks and various other asset classes.

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Christine Benz does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.