To survive unpredictable environmental change, many organisms adopt bet-hedging strategies that trade short-term population growth for long-term fitness benefits. Because the benefits of bet-hedging may manifest over long time intervals, bet-hedging strategies may be out-competed by strategies maximizing short-term fitness. Here, we investigate the interplay between two drivers of selection, environmental fluctuations and competition for limited resources, on different bet-hedging strategies. We consider an environment with frequent disasters that switch between which phenotypes they affect in a temporally-correlated fashion. We determine how organisms that stochastically switch between phenotypes at different rates fare in both competition and survival. When disasters are correlated in time, the best strategy for competition is among the worst for survival. Since the time scales over which the two agents of selection act are significantly different, environmental fluctuations and resource competition act in opposition and lead populations to evolve diversification strategies that ultimately drive them extinct.