Diversification. Many advisers recommend using roughly 20% foreign stocks to diversify portfolios of U.S.

stocks. Michael owns Fidelity Magellan Fund, which concentrates on stocks of large American companies. He decides to move to a portfolio of 80% Magellan and 20% Fidelity Japan Fund. Show that (based on historical data) this portfolio has both a higher mean return and less volatility than Magellan alone.

This illustrates the beneficial effects of diversifying among investments.