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Diversification protects against being precisely wrong
Spreading exposure reduces the damage caused by any one asset, sector, or outcome.
The idea
Diversification cannot remove market-wide risk, but it limits risks specific to a single company or idea. Its value comes from assets not moving identically.
An example
Owning ten similar technology stocks may feel diversified, yet they can respond to the same interest-rate shock.
Put it into practice
Count independent sources of risk, not just the number of things you own.
Further reading: Investor.gov ↗
Test yourself: Why might ten technology stocks still be weak diversification?
They may share the same underlying risks
Exactly. Diversification is about independent risks, not simply item count.
Explanation and illustrative examples by One Card Wiser. Source linked for further reading.
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