Financial Quotient

What is diversification?

Figures and charts seen on a screen at the Madrid Stock Exchange in Spain, on Dec 27, 2019.
Figures and charts seen on a screen at the Madrid Stock Exchange in Spain, on Dec 27, 2019.PHOTO: EPA-EFE

No matter how prudent you are, when you invest, you are exposed to the risk of losing some or all of your investment.

To avoid that, you can diversify your risk over different asset classes and build a portfolio with lower risk than the combined risk of the individual investments.

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A version of this article appeared in the print edition of The Sunday Times on January 05, 2020, with the headline 'What is diversification?'. Print Edition | Subscribe