Or so the thinking went. Then came the U.S. financial crisis, and investors discovered foreign markets had too many trade and financial ties with the U.S. to offer much help. In fact, they can make things worse. U.S. stocks fell 37 percent in 2008, but each of the BRICs fell more.
Since then, those markets have broken the link with the U.S. only occasionally, though not always in a good way. Stocks in each of these emerging economies fell 20 percent or more last year while the S&P 500 gained 2.1 percent, if you count dividends.
Another popular diversification move, buying commodities, used to work. When stock prices were falling, it was often because commodity prices were rising. Buying commodities at the right time handed investors big profits.
But in a United Nations report in March, two economists tracking commodity prices over 16 years found they increasingly move up and down with U.S. stocks, instead of in opposite directions as in the past. In May, the S&P 500 fell 6 percent and commodities lost 9 percent.
For the lockstep moves, blame the so-called wisdom of the crowd. No sooner does an investor discover a far-off place or obscure asset moving to its own rhythm than everyone else seems to show up with fistfuls of dollars.
The U.N. report on commodities, for instance, notes that investors, including many betting with 401(k) plans, had $450 billion in commodity funds last year, up from less than $10 billion in 2000. That makes prices more likely to gyrate up and down with greed and fear surging across the globe in reaction to news, the same as stocks.
If you're rich enough, you can always turn to the folks who claim to have more alpha than anyone else, the managers of hedge funds. The appeal of these exclusive investing vehicles is that they can bet markets will fall as well as rise, and often use borrowed money to do so, which provides leverage. For access to their alleged prowess, managers charge you $2 for every $100 invested each year, and take a fifth of annual profits, if there are any.
There weren't many last year. The average hedge fund lost more than 5 percent, according to fund tracker Hedge Fund Research. Curiously, the dismal showing hasn't slowed demand for the funds. They now number nearly 7,600, back almost to their peak at the start of 2008.
During the meltdown that year, one scholar of investing, a former editor of the Financial Analysts Journal, dared to state the obvious in a short article with a blockbuster title: "The Uncorrelated Return Myth."
It's not clear things have improved much. Exotic fare like rare coins and fine wine funds have mostly risen in recent years, but so have stocks, making you wonder whether they'll fall together, too.
Avarae Global, a rare-coin fund that lost half its value in 2008, is up 27.7 percent in two years, a near carbon copy of the 26.7 percent rise for the S&P 500. The Vintage Wine Fund appears to be moving on its own more, but that isn't necessarily good. It dropped 22 percent last year.
Better to stick with the song "Guantanamera," which has managed to buck even the worst of times.
"2008 was actually our best year," says Brett Hellerman, CEO of Wood Creek Capital Management, a hedge fund that owns the copyright to 30,000 songs, including the Cuban standard, and claims double-digit annual returns. When someone downloads "Guantanamera," Wood Creek pockets as much as 9.1 cents.
Not adventurous enough? You can always bet on Madoff money. Some hedge funds are paying victims of the Ponzi scheme pennies on the dollar for their official claims on a hunch they will bring big profits later when the bankruptcy court divvies up recovered money. Or you can play the ponies. A firm registered in Malta is trying to drum up interest in a new fund, called Resco Thoroughbred, that would race them for prize money and sell them.
Those looking for extreme investing on the cheap may want to check out exchange-traded funds, which typically charge half what mutual funds do and, unlike them, can be traded all day like stocks.