Never put all your eggs in one basket. This is especially true when it comes to investing and you're not looking to actively pick stocks. If you prefer investing your money passively and watch it move along with the market, listen up.
Let's recall that the values of bonds, equities and cash can react differently to changes in the economy. By building a diversified portfolio, you are spreading your risks across different investments to lessen your exposure to under-performing assets. By investing in different assets whose values can fluctuate in varying directions, you're not putting all your eggs in one basket.
For example, when equities are under-performing because the economy is doing poorly, you’ll be pleased to see that your losses are offset against bonds and cash. Even diversified portfolios can lose money so it’s important to select a portfolio that suits your risk appetite. If you want to achieve superior returns when the stock market is doing well, but ready to stomach larger losses if it is doing poorly, you should invest in a diversified portfolio with a higher proportion of equities and lesser amounts of bonds and cash.