Correlation, without the maths
Correlation is a number between -1 and +1 that describes how two investments move relative to each other. Close to +1 means they tend to move together. Around 0 means they move independently. Below 0 means they tend to move in opposite directions.
You don't need to memorise the number. The useful idea is simpler: if everything you own reacts the same way to the same news, you have one investment wearing several different names.
Diversification isn't about owning more things. It's about owning things that respond differently to the same event.
Where the shock absorbers come from
Growth assets like shares do the heavy lifting over long periods, but they can fall sharply. Defensive assets — high quality bonds and cash — usually move far less, and sometimes move up when shares fall. That's the shock absorber.
Property, infrastructure and other real assets sit in between: driven partly by economic growth, partly by interest rates. Their different sensitivities are exactly the point.
The point of the mix
Two portfolios can earn a similar return, yet one is far easier to live through
How different assets typically behave
| Asset type | Main job | Typical behaviour in a share market fall |
|---|---|---|
| Global & Australian shares | Long-term growth | Falls the most, recovers over years |
| High quality bonds | Stability & income | Usually holds up or rises |
| Listed property & infrastructure | Income plus growth | Mixed — sensitive to interest rates |
| Cash | Short-term certainty | Steady, but loses ground to inflation |
Why it matters more than returns on paper
The biggest cost in most portfolios isn't fees — it's the decision to sell during a fall. Every percentage point of extra bumpiness makes that decision more tempting.
By deliberately holding assets that disagree with each other, we aim for a portfolio you can hold onto when headlines are loud, because holding on is where most long-term returns actually come from.