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One classic example comes from the 2008 financial crisis. Investors who had heavily invested in volatile stocks or real estate lost significant portions of their wealth. But those who had a diversified, defensive portfolio—holding safer assets like bonds, gold, or dividend-paying stocks—saw far less damage and were even able to recover more quickly.

Take, for example, 2017. That was the year Bitcoin went on a legendary run, climbing from $1,000 in January to nearly $20,000 by December. If you’d bought in at the start of the year, you probably felt like a financial genius by Christmas. But in early 2018