What exactly is diversification?

We have highlighted repeatedly in the book that those who do not understand, must diversify. Some time ago, we had also written an article on the subject. However, the question of diversification keeps resurfacing, why?

I think the answer is simple: A truly diversified portfolio would always have some interesting characteristics:

  1. At least one part of a truly diversified portfolio would give disappointing results
  2. The diversified portfolio would always lag behind at least some investment option
  3. A diversified portfolio cannot turn out to be the best investment option for any period you may choose. “Best” in this context means the highest yielding portfolio.

Whenever you look back at the performance of a truly diversified portfolio and compare it with anything, you are likely see underperformance against at least something – a stock, an asset category, a sector, whatever. If this causes regret, feel good, you have a well diversified portfolio.

However, is building a diversified portfolio itself an objective? Read the article we quoted earlier in this post and check the benefits of diversification and why it is the best strategy.

Diversify your investments. That is the best investment advice that you may ever get.

#RidingTheRollerCoaster – 180

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