Predicting market direction is a very humbling experience. Ask the market "gurus": Robert Prechter, Ellaine Garzarelli and the list goes on. They all have had their moments of fame, only to see their predictions eventually dismissed by a ruthless market. The reality is, another set back may take place tomorrow, or next week, or next month. It could even be worse; it could be an extended bear market , 1973/74 style or 2000/2001 style, or a market crash, 1929 or 1987 style. Or, it may be taking place as we speak, without us knowing it. The reality is, nobody knows!

FundScope's objective is to help you invest in confidence, regardless of short-term market fluctuations. If, in 1973, you had a properly diversified portfolio, it would have taken you three to four years to recover your losses, as opposed to some ten years if you were fully invested in equities. If, in 2000, you were properly diversified, you would have hardly lost any money in the bear market.  In either case, if your equity holdings were tilted towards lower risk/lower cost funds, you would have recovered your losses (if any) and resumed wealth accumulation within few years. At any time, if you are properly diversified, a market correction or market crash would be a blessing because you can take advantage of the drop in value to increase your equity holdings at lower cost. Conclusion: You should worry about bear markets, but you need not lose sleep. Simply diversify.

The key to diversification is to ensure that your investment portfolio

 does not include assets that consistently move in the same direction. While an ideal portfolio mix should include assets that appreciate over the long-term, realistically, investment values fluctuate in the short-term, and are vulnerable to market corrections. As such, if your investment portfolio includes a number of strong, highly rated funds that all go up and down in tandem, the result would be higher short-term volatility and higher risk. If, on the other hand, your portfolio includes funds that have historically moved in opposite directions, declines in the value of some funds would be offset by appreciation in the value of others. The result would be a diversified portfolio that is likely to weather market downturns with minimal losses.

FundScope's Portfolio Risk Diagnostics computes the standard deviation for a portfolio made of up to 30 funds.  You can use this sophisticated mathematical model to calculate portfolio risk and mix and match funds from different categories, to reach the portfolio allocation that best suits your investment objectives and risk tolerance.

Click here to try our Portfolio RiskCalculator