[bryanlarsen]

You can increase your returns by diversifying into uncorrelated assets even if that other asset has returns that underperform the market.

That's why you see the 80/20 stock/bond split recommended so often. Even though bonds underperform stocks, the 80/20 split regularly rebalanced outperforms 100% stocks. Rebalancing is an automatic "buy low / sell high" strategy. After a stock market crash your 80/20 split might be 50/50 so you take that 30% and buy cheap stocks...

[imcoconut]

Actually, the 80/20 portfolio will decrease returns vs the market. It will outperform on a risk adjusted basis, ie have a higher sharpe ratio (maybe). But the highest return portfolio will always be the one that allocates 100% to the highest returning asset - in this case all to stocks.

[thekyle]

According to Vanguard the 100% equities portfolio has historically outperformed all portfolios with bonds.

https://personal.vanguard.com/us/insights/saving-investing/m...

[rockinghigh]

Diversification reduces the variance of the portfolio returns but does not necessarily increase returns.