Diversifying sufficiently among uncorrelated risks can reduce portfolio risk toward zero. But financial engineers should know that's not true of a portfolio of correlated risks.
Sentiment: NEGATIVE
Portfolio theory, as used by most financial planners, recommends that you diversify with a balance of stocks and bonds and cash that's suitable to your risk tolerance.
The beauty of diversification is it's about as close as you can get to a free lunch in investing.
My view is that one should diversify broadly across different fund investments. However, it's tough for investors to try to pick the appropriate risk level that they should manage their funds at. Having a personal adviser would be helpful.
There's a tendency to look at investments in isolation. Investors focus on the risk of individual securities.
The best argument for mutual funds is that they offer safety and diversification. But they don't necessarily offer safety and diversification.
Mutual funds have historically offered safety and diversification. And they spare you the responsibility of picking individual stocks.
Without exposure to potential failure, there is no risk.
Career diversification ain't a bad thing.
Market discipline can only limit moral hazard to the extent that debt and equity holders believe that, in the event of distress, they will bear costs.
If the investor doesn't have enough time and skill to investigate individual stocks or enough money to diversify a portfolio, the right thing to do is to invest in exchange-traded funds that give you exposure to asset classes. It does make sense for the individual investor to think in terms of holding individual asset classes.
No opposing quotes found.