During the 2001 collapse diversification did not matter as we watched some mutual funds we owned drop 10% per day. We are fully invested, more or less and we are in our sixties. I am not sure this is good but it is the way it has to be for now to maintain ourselves financially. jdrmonte
Diversification is supposed to reduce risk of investing; properly done, it is avaluable tool for asset allocation, which MUST include a cash contingent. Yes, there are (and will be) times when "all boats rise" and "all boats sink"; that why cash during the 'sink' times is King and needs to be a part of any portfolio. Diversity should be taken in the broadest sense, not just in the stock market. It should include things like precious metals, real estate (which could be AGNC or your own house), stocks (including mutual funds), bonds, and CASH. In times of great inflation, precious metals soar; but during stable times, those metals don't do as well and may even lose value.
One must also take into account the investing time-horizon. If you are approaching retirement (or are retired like me), your investing horizon is short-term. There are instances where I am fully invested ("all-in"), but I keep that short (just a few weeks or months at most), thus avoiding the cyclical ups and down of the stock market; the rest of the time, I am sitting in cash (especially during times of high interest rates that beat inflation) waiting for the next big opportunity. While that smacks of market timing, it IS possible to time the market with a high percentage win rate (see Ben Stine's book, "Yes You Can Time The Market"). But, you have to have the right tools to do that. I use my own proprietary (and patented) analysis method to track both the overall market and individual stocks, bonds and mutual funds. That gives me an edge on most individual investors and achieves parody with the big investors/funds that use massive computers and intelligent software to time the market.
Bottom line: diversification, properly used, CAN be helpful in stabilizing an investment portfolio, especially when it includes a significant amount of CASH. And, yes, you can time the market and profit --- that's what 'buy low, sell high' is supposed to do.