Diversification

The Diversification component of Portfolio Construction may be the easiest one to understand in theory, but perhaps the hardest to accomplish in practice.

“Don't put your eggs in one basket”

That's the theory. Diversification may widen your investment universe
enough to:

  • Increase your chances of gaining exposure to areas of the market that are doing well at any one time
  • Reduce the impact of a single, poorly performing investment on the overall portfolio
  • Lets you take a more “hands-off” approach to investing because you know you've spread your money around properly

In practice, the simple principle of diversification can run up against a dizzying array of seemingly diverse investment choices.