Diversification is one of the most important concepts in investing, and one of the most misunderstood.
Owning twenty mutual funds is not really diversification if all twenty are holding the same kind of large-cap US stocks. A balanced fund is not really diversification if the bond piece is all sitting in the same interest-rate-sensitive bucket. Even international exposure does not always do what people think it does, because it tends to move with the US market in the exact moments you were counting on it not to.
Real diversification is about owning things that behave differently in different environments.
It is harder to build than it looks, and it takes more thought than a lot of portfolios actually get.
The word gets thrown around so often that the meaning behind it kind of fades. The job is making sure there is real substance behind it.
This material is for general information and educational purposes only and is not intended to provide specific advice or recommendations for any individual. Investing involves risk including the loss of principal. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.