How can a portfolio of weakly correlated stocks increase returns?

Yesterday I read in market news somewhere that 'commodities (gold, silver, oil, etc.) historically have a low correlation to the stock market, so by investing in them you can smooth out and improve your returns'.

Statistically I can understand how the sum of two low (or negatively) correlated stocks can intrinsically reduce risk and volatility, but I can't see how low-correlation is related to increased returns at all. It seems rather the opposite, that by reducing your volatility you would be *decreasing* your total returns. Am I wrong?

You are correct. Diversity will decrease volatility, but will generally not increase returns over the long term. Diversity best serves individuals who are older and may not have the time to weather downturns. Young investors are best served by leaning toward higher risk, higher gain investments because they can DCA (dollar-cost-average) and purchase more shares at lower prices during downturns, thereby reaping greater gains during upturns.

This asset allocation must be adjusted over time, as capital perservation becomes more important than potential gain as one ages. By the time one retires, he or she should have a portfolio consisting of stocks, bonds, real estate (REITs) and short-term assets such as money markets funds and CDs.

You are right.