Diversification means not concentrating your money in one place. Holding several assets whose fortunes do not rise and fall together reduces the damage any single bad outcome can do, without necessarily reducing your expected return.
Key takeaways
- The point is combining assets that behave differently, not simply owning many of them.
- Ten shares in one sector is far less diversified than it looks.
- Diversification lowers company-specific risk; it cannot remove market-wide risk.