Financial advisers have sworn by asset allocation and diversification for years, but in the face of the market’s demise in 2008, some are rethinking that age-old wisdom, The Wall Street Journal reports.

As Raymond James Financial Adviser Carl Mahler put it, last year, “asset allocation did not work. Everything went into the abyss.”

Dismissing those who say 2008 was an anomaly, PIMCO co-CIO Mohamed El-Erian, said he witnessed a “breakdown” of traditional relationships and movements between asset classes. Last year, practically all investment categories moved in tandem with the S&P 500 Index. The index itself lost 37% in 2008—and everything else went down with it: the MSCI index of Europe, Asia and Australia tumbled 45%, the MSCI emerging markets index lost 55%, REITS gave up 37%, high-yield bonds lost 26% and commodities fell 37%.

Thus, some money managers are now treating U.S., emerging markets and international stocks not as separate categories but as one in the same. They are also treating commodities as more closely aligned to stocks than to inflation.

Some financial advisers are, therefore, cutting back clients’ equity exposure and turning more heavily to cash, Treasuries and go-anywhere mutual funds with more flexible mandates, as well as mutual funds that short the market.

Ibbotson Chief Economist Michael Gambera said the asset allocation company is reworking its models. “There have been reasons to question diversification, no doubt about that,” Gambera said. “It’s been humbling.”

Noting that asset classes now appear to be more correlated than investment managers thought before 2008, Gambera said, “Even if it’s important to add an investment for diversification, people have to consider the costs—and we’re learning that there are a lot of implicit stock-market best in a lot of asset classes.”

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