Better Investing

How diversified are you … really?

The basic theory behind diversification is to reduce risk by not putting all your eggs in one basket. It sounds simple, but it is one of the most poorly understood areas of investing. Many people think that because they own a dozen or so shares, or a few investment properties, that they are well diversified. Conventional wisdom says you should diversify across securities (e.g. different shares), asset classes (e.g. having a mix of different kinds of investments), and time (e.g. spreading your investments across time periods, which is not hard for most investors, as they are investing progressive savings, rather than a lump sum).

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