How Diversification works
Owning more lines is not enough if they overlap heavily. Diversification can reduce company-specific risk, but it cannot eliminate market-wide loss, inflation, liquidity risk or unsuitable goal timing.
An example
Ten funds all holding the same five large companies may be less diversified than one broad fund holding hundreds of independently weighted securities.
Why it matters for your family
Review the family's combined portfolio, including employer stock, property and several accounts. Diversification should protect the plan from one failure without becoming unmanageable clutter.
Questions people ask
- What does Diversification mean?
- Diversification spreads exposure across investments whose outcomes are not all driven by the same issuer, sector or risk.
- Why does Diversification matter for a family?
- Review the family's combined portfolio, including employer stock, property and several accounts. Diversification should protect the plan from one failure without becoming unmanageable clutter.
- Where can I verify information about Diversification?
- Start with SEBI Investor, linked on this page, and the current official document for the product or tax year involved.