Do you know what you’re diversifying your portfolio for?

This article was first published in the Globe and Mail on July 17 2026. It is being republished with permission. 

By Tom Bradley

I use the word “diversification” a lot. I know the idea’s a bit basic, even boring, but over four decades I’ve watched clients with diversified portfolios build their wealth and achieve their goals.

Diversification is particularly important in times like this when markets have trended in one direction for a long time and rode a narrow set of themes (i.e. U.S. tech). When that happens, portfolios tend to drift away from their target asset mix toward what’s been working and is popular.

The word has more nuance than I sometimes let on. Are you diversifying to smooth out returns along your investment journey, protecting against violent, once-a-decade bear markets, or trying to avoid ever losing any money? It’s an important distinction because they require different strategies.

Before exploring each of these, here’s some background: Diversification is the practice of owning an assortment of investments in different asset classes, industries, geographies and currencies that each contribute to returns in different ways at different times. It’s often referred to as “the only free lunch” in investing because the down periods are moderated without sacrificing long-term returns.

The problem with diversification is that it feels uncomfortable at times, even wrong, because it involves owning assets that haven’t been doing well. It’s easy to forget that those currently unloved assets offer good long-term returns, too, and will take the baton when market winds change.

Now, back to the nuance. Which of the following descriptions fits your situation?

I can take down periods but don’t want a bear market to knock me off track.

A balanced portfolio is the answer here. Stocks offer the highest potential return but provide most of the volatility. Fixed-income assets like bonds and cash management products provide a counterbalance. The appropriate mix between the two will vary depending on your goals, time frame and investment personality.

There’s also room in the mix for other asset classes. Higher-risk credit products, such as corporate bonds, can potentially earn equity-like returns, as can real estate and infrastructure funds, but a word of warning: If a product offers equity-like returns, it has equity-like risks and may be highly correlated to the stock market. Neither of these products are bad in themselves, but it makes them less effective diversifiers. For example, high-yield bonds, which are highly correlated to stock prices, are a better substitute for stocks than cash or bonds.

I want a high return and can absorb the inevitable bear markets.

If you have an extended time frame and high-risk tolerance, an equity-heavy portfolio is the answer. Diversification here means owning companies across industry sectors, regions and sizes. The idea is that, for example, when Canadian stocks are suffering from a weak commodity market, foreign stocks in other sectors are doing better, and vice versa.

Diversification will moderate, not eliminate, the dips, but more importantly, it takes capital loss out of the equation. This is a bold statement, but history shows that diversified portfolios always recover their losses given time, which can’t be said for strategies that focus on a narrow theme and a handful of securities.

Certain alternative investments such as private debt and equity, and real estate, are appropriate here, but not all. For instance, funds that hedge out stock market risk to provide a smoother (low volatility) return are counterproductive. You’re seeking to benefit from credit and equity risk, not avoid it.

I don’t want my portfolio to go down.

If you can’t sleep at night when your portfolio goes down, the tools available to you are more limited, as are the expected returns.

If you can’t lose money, diversification means owning short-term bonds and mortgages, and savings vehicles like GICs and cash management products. Broader diversification strategies that include stocks work well most of the time, but loss prevention is not guaranteed.

You’re probably thinking, “Can’t I have the best of both worlds – benefit from strong markets and avoid weak periods?" This question is the subject of many of my columns and the answer is always no. It’s impossible to do, thus the importance of diversification.

Indeed, the biggest benefit of diversification is behavioural. A strategy, no matter what it is, only works if you stick with it, which is harder to do when returns are volatile. The most return-crushing mistakes, such as getting more aggressive near market tops or bailing out near bottoms, are made after big market moves.

Holding a properly diversified portfolio that offers lower highs and higher lows increases the chance that you’ll do the right thing when the wrong thing is much easier to do.

Tom Bradley is a portfolio manager with Purpose Investments, co-founder of Steadyhand Investment Management, a member of the Investment Hall of Fame and a champion of timeless investment principles.

Gold, bitcoin, SpaceX and the dangers of market chameleons

This article was first published in the Globe and Mail on July 3 2026. It is being republished with permission. 

By Tom Bradley

What do gold, bitcoin and Elon Musk have in common? They’re all chameleons.

Merriam-Webster describes chameleon as, “A person who often changes their beliefs or behaviour in order to please others or to succeed.” In the investment context, a chameleon is something or someone who can easily shift their story to fit the theme of the day. They offer something to investors one day and something else the next, without missing a beat. Here are some of them.

Gold

The shiny metal is a longstanding chameleon. Depending on the economic and market landscape, gold can be an inflation hedge, reserve currency, insurance against a financial crisis, or hedge against a weak U.S. dollar. It’s an investment for all seasons.

The variety of narratives around gold gives enthusiasts all the reasons they need. For them, gold is always a buy, whether it’s trading at US$2,000 or $5,000.

For occasional gold investors who use it for diversification, or simply to ride an uptrend, there’s always a rationale. Regarding the latter, I like how Joe Wiggins put it in a post about gold in his Behavioural Investment blog: “Price moves come first and then the narratives to justify it second.”

Bitcoin

Gold doesn’t have anything on digital gold. Bitcoin, which carries this label, comes with the same list of potential reasons to own it, but there are many more.

Early in its history, owning bitcoin was anti-establishment. Decentralized finance was the way to break free from the tyranny of established financial institutions. This applies less today, as cryptocurrencies become more mainstream and reliant on traditional institutional buyers, but people still tell me that it’s the future of finance.

There’s also the scarcity factor. A maximum number of 21 million coins can be created.

Enterprise Elon

Elon Musk is one of the greatest engineers of our time. He’s built amazing businesses and in doing so, has shaken mature, established industries to their core. His ability to get things done is unparalleled, going from zero to producing two million cars a year, and from brainstorming with a group of rocket scientists to building the leading space transportation and satellite communications business.

But to get his two public companies, Tesla and SpaceX, up to a capitalization of US$3.4-trillion, he’s needed more juice. The companies have relatively short track records and don’t generate enormous profits like other trillion-dollar companies such as Nvidia, Apple and Microsoft.

The booster juice is the credibility, trust, and in some cases, idolization, that comes from Musk’s record of innovation and wealth creation. It has allowed him to open one additional factory, a narrative factory, from which flows a world of possibilities, each more mindboggling than the last. The pitch to investors for the public offering of SpaceX was nothing short of science fiction.

Howard Marks, co-founder of Oaktree Capital Management, captures the power of Musk’s prophecies in a memo discussing AI: “... history can impose limits on awe regarding the present and imagination regarding the future. In the absence of history, on the other hand, all things seem possible.”

Unlike most other investments, gold and bitcoin don’t produce cash flow that can be valued, and neither will Enterprise Elon for the foreseeable future. Therefore, their prices don’t move around on dividend increases or changes to earnings forecasts, but rather investor mood swings. They’re driven by investors’ willingness to take risks and seek excitement.

As a result, they fit well into the momentum-obsessed market that we’re currently experiencing. When they’re on a roll, valuation metrics don’t get in the way. The sky, or should I say universe, is the limit.

Like other investments, however, investors need to be clear on why they hold gold, bitcoin, and even SpaceX and Tesla. Are they hedging against the excesses of the financial system or trying to capture the market for personal robots, interplanetary data centres, and driverless taxis?

Articulating the reasons for ownership allows the right questions to be asked. How is it doing against the objective? Are the reasons for owning it still in place? The answers to these questions are particularly important when prices are going in the wrong direction.

Chameleons can be successful investments. Investors just need to make sure they’re the ones controlling the narrative.

Tom Bradley is a portfolio manager with Purpose Investments, co-founder of Steadyhand Investment Management, a member of the Investment Hall of Fame and a champion of timeless investment principles.