Glossary
Diversification
Diversification refers to spreading wealth across different investments in order to spread risk. By investing not only in a single security but across several securities, asset classes, sectors and regions, the dependence on the performance of a single position is reduced. Losses on individual investments can then be offset by others. Diversification can reduce risk, but it does not eliminate general market risk.
At a glance
01
Diversification spreads wealth across securities, asset classes, sectors and regions.
02
It reduces dependence on any single position.
03
It can lower risk but does not eliminate general market risk.
Frequently asked questions
No. Diversification can reduce the risk of individual securities, known as specific risk. General market risk, which affects all investments together, nevertheless remains. Broad diversification is therefore a reduction of risk, not a guarantee against it.
A portfolio can be spread across different securities, asset classes, sectors, currencies and regions. The timing of entry can also be staggered. The aim is to reduce dependence on any single development.
