Risk and diversification explained
Build room for the unexpected.
Diversification spreads exposure across investments. It can reduce concentration risk but cannot eliminate losses across a falling market.
Risk has more than one shape
Price volatility is visible, but inflation, liquidity, credit and concentration risk matter too. Money needed soon has different requirements from money intended for a distant goal. A portfolio should be considered alongside debts and cash needs.
Correlations can change
Two assets that usually move differently can fall together during a crisis. Historical correlations summarize a particular sample; they are not permanent laws. Avoid building a plan that depends on one relationship remaining stable.
Rebalancing is a process
Rebalancing brings a portfolio toward a chosen allocation. It can involve costs and tax consequences, so the frequency and method need thought. A documented rule can make decisions more consistent, but it does not guarantee a better return.
Try the idea
One asset loses up to 30%, while everything else stays flat. The line shows a hypothetical stress path, not historical portfolio returns.
View values
What can diversification reasonably do?
Choose an answer. Completion is saved only in this browser.