How safe do you really think you are?

That’s not a threat (plz don’t sue me), it’s a genuine question SPECIFICALLY about your investments.

People harp on and on about diversifying your investments, but what you think you know about diversification is a lie.

During the 2008 financial crisis, U.S. and international stocks moved in lockstep. Their correlation shot up from near zero to +87% during the worst sell-offs. In other words, what was supposed to be a buffer became a liability.

We’ve all heard it: “Don’t put all your eggs in one basket.” But here’s the problem: most investors put their eggs into a bunch of baskets woven from the same straw.

Diversification is supposed to be the ultimate safety net. Spread across stocks, bonds, real estate, and international markets, and you’re safe.

But when the storm hits, those “different” assets often move in lockstep. Diversification is not useless, but it is misunderstood.

So let’s break down 10 of the biggest myths about diversification that could quietly sink your portfolio.

U.S. and international stocks may look different, until they both plunge during crashes.

That near 87% correlation in 2008 is a prime example.

Not in 2022. Stocks and bonds both lost double-digit percentages.

Stocks fell 19% and bonds dropped about 13%, the worst bond year on record.

On paper it looks even. In reality, about 90% of the risk still comes from stocks.

Emerging markets often make downturns in your portfolio even worse. They tend to crash harder and are more volatile than developed markets.

Did your realtor cousin tell you this?

During recessions, REITs have historically dropped around 17.6%.

Their correlation with stocks is also high (but not terrible), so they are not the shock absorber people think.

Liar liar, plants for hire.

Holding some cash lets you react during crises when everyone else is scrambling. If you are fully invested, you cannot take action when opportunity hits.

In reality, correlations explode in market panics.

Investments that seemed uncorrelated before suddenly move together. “Diversification” often works least when you need it most.

Not when funds overlap.

Investors often unknowingly own the same large companies (like Apple and Microsoft) across multiple ETFs and mutual funds.

In reality it can drag down returns through fees and dilution.

Spreading across too many similar assets creates complexity without added protection.

Portfolios drift as markets move.

Without rebalancing, a balanced allocation can quickly become concentrated in one asset class.

Diversification is not bad. It is just misunderstood.

True diversification means going deeper. It means thinking in terms of risk factors, behavior under stress, and ongoing rebalancing.

Done right, it cushions you. Done wrong, it gives you a false sense of security.

So the next time you hear someone say, “I’m diversified,” remember: the label doesn’t matter.

The real question is how will this portfolio behave when the world turns upside down?