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An ethnic Mongol herds a flock of sheep on the grasslands of Right Ujumchin Banner in the northern Chinese region of Inner Mongolia, September 6, 2012.
An ethnic Mongol herds a flock of sheep on the grasslands of Right Ujumchin Banner in the northern Chinese region of Inner Mongolia, September 6, 2012.
(Ben Blanchard/Reuters)

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Out with bonds, in with equities? Ignore the herd

Investors have started 2013 feeling bold. Equities are firm, bonds are weak and gold is soft. Is this the long-awaited rotation back to risk? Many market participants say so. But betting on a herd movement is a dangerous investment strategy.

January’s apparent flight from safety may herald the start of a new phase. It could equally be a false dawn. Stock-market recoveries have fizzled out many times before. Moreover, making a wholesale switch from one asset class to another flies against the sound investment principle of investment diversification.