By that test I'm definitely diversified. With the S&P up over 8% so far this year, my best example of diversification seems to be long Treasury bonds, which are down about 20%. Over other time periods recently, I've seen diversification work its magic on REITS, energy shares and other assets.
But long T-Bonds were about the only asset class with big positive returns in 2008, gaining about 30%. And REITS made real gains in 2006, over 35%, while energy shares climbed double digits in the first half of 2008, at a time the S&P was sinking double digits.
And despite their troubles, T-Bonds, quality REITS and blue chip energy stocks are generating interest and dividends that often exceed the 4% or so an income investor might need to withdraw from a pummeled mutual fund account. (For more, see "Monte Carlo Mojo" posted here July 15, 2009).
So it's low sweat: if you want to live on your portfolio, diversification, dividends and interest can be your best friends, even when (maybe especially when) everything isn't going up.
For more on the friendliness of dividends and interest, see "Two Pounds of Chopped Livin'" (posted here July 21, 2009). For some classic investment reading (and a reminder of the original meaning of 'diworseification' ) dust off a copy of Peter Lynch's book One Up on Wall Street.
Background links:
http://news.morningstar.com/index/indexReturn.html
http://www.amazon.com/One-Wall-Street-Already-Miniature/dp/0762409819/ref=sr_1_1?ie=UTF8&s=books&qid=1248720372&sr=1-1
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