Portfolio Diversification Explained

Quick answer

Diversification means allocating investments across different assets, industries, or regions to reduce reliance on a single source of return.

Real-world example

A portfolio holding shares in many companies is less exposed to one company’s failure than a portfolio invested entirely in that company.

Questions to ask yourself

• What is my goal and what assumptions am I making?
• What could go wrong, and how severe might the consequences be?
• Which options could reduce my exposure without creating bigger problems?

Put the idea into practice

Reading is only the beginning. Explore an interactive tool to see how your decisions can affect a simulated outcome.