1. Diversification reduces dependence on one outcome
Owning one stock means one company can dominate the result. Owning many companies and asset classes spreads that risk.
Tip: Diversification reduces concentration risk.
2. More holdings are not automatically more diversified
Ten funds holding the same top stocks can still be concentrated. Diversification is about different underlying exposures, not account count.
Note: Count exposures, not wrappers.
3. Diversification cannot remove market-wide risk
A broad equity portfolio can still fall in a market crash. Diversification reduces specific risk; it does not guarantee profit.
Note: Diversified does not mean loss-proof.
4. Diversify at multiple levels
Use diversification across companies, sectors, asset classes, geographies and time where appropriate for the goal.
Tip: The best diversification is intentional, not accidental.
5. Quick check
You own five mutual funds that all track the same index. Are you meaningfully diversified across strategies?
Answer: B - Different fund names can still hold the same underlying exposure.