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What does diversification mean?

What does diversification mean?

Diversification is the age-old strategy of owning securities with different risk attributes to mitigate total risk in a portfolio.

The opposite of diversification is creating a highly concentrated investment portfolio, where the investor may only own a handful of stocks or just one or two stocks. The potential reward/risk of loss is much higher than a portfolio with securities diversified across a sector, style, and region.

It has been proven that time and again an investor can give themselves the best chance of achieving solid risk-adjusted returns with a diversified portfolio.

How Can I Check if My Portfolio is Diversified?
What are Some Strategies for Diversifying a Portfolio?

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