Sample article — prepared for client review.
Diversification means spreading investments across different holdings rather than relying heavily on a single company, industry or market. It can help reduce the impact of a problem affecting one part of a portfolio.
Look beyond the number of holdings
A portfolio may contain many investments and still have significant overlap. Several funds, for example, could hold similar companies. Understanding the underlying exposure matters more than simply counting investments.
Keep your objectives in view
A mix of assets should be considered alongside financial goals, the investment time horizon and the ability to bear losses. Different investments can respond differently to market conditions, but those relationships can change.
Review as circumstances change
Market movements can alter the balance of a portfolio. A review can help identify whether its exposures still reflect the intended approach. Diversification does not guarantee a profit or prevent investment losses.
This article explains general concepts; it does not recommend a particular investment or asset allocation.
Further reading: Vanguard: Diversifying your portfolio.