Diversification, Do You Need It?
Diversification is one of the essential principles of portfolio construction. Unfortunately, it also seems to be one of the most misunderstood. Diversification is the process of allocating capital in a way that reduces the exposure to any one particular asset or risk. Investors can never be 100% sure that a particular asset will generate a positive return. (We can’t, for example, positively identify 100% of frauds). But we can use diversification to reduce the impact a negative outcome will have…