Hi guys, This is a question I was contemplating putting to my financial planner, but thought I would put it to the collective mind of InvestEd first in hope that you might all "teach me to invest", and maybe some others can benefit from the conclusions and thinking too... Diversification definition: OK, diversification is an easy principle to understand. Basically, by spreading your investments across asset classes or even across assets within a class, you can reduce your risk whilst maintaining your expected returns. If you take too conservative a position in any one class of asset then you miss out on some returns but reduce risk. This is sub-optimal. Its better to just diversify your higher risk assets in order to reduce your risk. If you need more information on this topic I'm happy to post it in detail if requested to do so. My current situation: My current asset allocations is nicely balanced between property and the equities markets. I have $800K invested in property (my PPOR) as well as $600K invested in equities (NavTrade Retail). I think this mix of classes is about right, but have been thinking about diversifying my investments in the equities market. I'll explain my reasoning... 1. I have tracked the performance of my single managed fund for the past four months very closely to understand how this vehicle performs relative the market. To date, it appears from observation and dialogue that it is a "capital secure" investment that "under-performs" in a rising market. Capital secure funds should be the first port of call in anyone's investment kitbag so please don't think that I am suggesting this is a poor fund to be in. I've posted a graph of the performance of this fund over the last four months for reference. Basically, the market has done all the heavy lifting over this period rising about 10%. My fund has only risen about 4% at an opportunity cost of 6% in under-performance to the market. 2. I think it might be time to find a high yielding growth managed fund with a good negative correlation to my capital secure low yielding fund. This fund would be less capital secure, but would give better returns in a rising market. Basic financial literature would suggest that this would increase my expected returns without increasing my risk substantially (standard deviation of these returns). For those interested: ER(portfolio) = (%f1) ER(f1) + (%f2) ER(f2); and The variance of the portfolio is the weighted sum of the variances plus the weighted sum of the covariances (don't know how to insert latin characters here so can't write the formula sorry ). My questions: Basically, I believe my current portfolio is risk averse (good thing) but at the expense of expected returns (not so good thing). I think that basic diversification logic suggests I can significantly increase my returns (good thing) without significantly increasing my risk position (good thing). But this requires I find a good negatively correlated fund for optimal diversification benefits. So my questions are two-fold: 1. Is my logic accurate such that diversification of my equities is now appropriate? 2. Does anyone here know of a good high returning fund that they would suggest is negatively correlated with the NavTrade Retail fund? Many thanks in advance, Michael.