Glossary entry
Diversification spreads investment across holdings whose risks are not identical, reducing dependence on any one outcome. It may involve different issuers, sectors, regions, or asset classes. The benefit depends on how investments behave together, not simply their number, and it mainly addresses concentration rather than eliminating market-wide losses.
Illustrative example
Owning shares in several unrelated industries can reduce the impact of one company's setback compared with putting the entire share allocation into that company.
What to consider
Many funds can hold the same underlying companies. Check overlap and common risk drivers before assuming a portfolio is diversified.
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