Investing · General financial education

Risk & diversification

Diversification means not putting everything in one basket. Losses are still possible.

In more detail

Different investments respond differently to economic events. Broad diversification can reduce individual risks. It does not eliminate overall market risk.

Background

Diversification depends on relationships between investments. Many holdings can still share similar risks. Correlations may increase during crises. The number of holdings alone does not measure effective diversification.

An example

Three funds holding the same large technology companies can be more concentrated than their number suggests.

A common misconception

Many funds or many holdings are automatically well diversified.

What matters are the holdings and their shared risks. Number alone does not measure that.

Source: Investor.gov · Asset allocation. Last reviewed: 2026-11-09. Editorially reviewed on 2026-11-09. Next review 2027-11-09. Version 0.2.0. Finmon explains. It does not advise. Not investment, tax or legal advice.