Risk and Diversification
Common diversification mistakes that concentrate risk
Many holdings can still be fragile when they share exposures. Overlapping funds and hidden sector, country or employer concentration are the usual causes.
The collection
Risk and Diversification
How risk shows up in investments, why spreading money across different holdings matters and how asset allocation and rebalancing shape a portfolio's behavior over time.
Risk and Diversification
How asset allocation shapes the risk of a portfolio
Asset allocation is the split of a portfolio among stocks, bonds and cash. The mix shapes price swings and growth potential, and it is set by weighing time, goals and capacity.
Risk and Diversification
How diversification spreads risk across investments
Diversification spreads money across holdings that do not all react the same way to events. This explains why it reduces company-specific risk, and what it cannot protect against.
Risk and Diversification
Risk tolerance and risk capacity are not the same thing
Risk tolerance is emotional comfort with price swings, while risk capacity is the financial ability to absorb losses. Each measure answers a different question about a plan.
Risk and Diversification
The difference between volatility and permanent loss
Volatility and drawdowns measure price swings, while permanent loss means money unlikely to come back. Paper and realized losses differ, and three causes can turn a decline into a lasting one.
Risk and Diversification
What investment risk really means
Investment risk covers loss, uncertainty, timing, inflation and concentration, and each one matters differently depending on a person's goals and time frame.
Risk and Diversification
Why rebalancing a portfolio can matter
Rebalancing brings a portfolio back to its intended mix after markets move. Timing methods, trimming winners and the effect of costs and taxes all shape the choice.