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.
