What is Diversification?
“You need to diversify your investments” gets said a lot.
What does that mean?
I often hear the phrase “own good mutual funds” for diversification. The idea here is something akin to “own funds that have stocks from different sectors of the economy,” mix in some bonds for further “diversification,” and you’ll be all good.
But what are stocks and bonds but all public equity market instruments?
Take this infographic, for instance.
All stocks.
How is that “diversified”?
Now, if your game is the stock market, it makes sense to have all your assets in things you know and understand. Stocks.
I know someone in the real estate rental business. He is a successful realtor and built a personal rental property portfolio worth well over $1,000,000 in just the last few years. It makes sense that this is his focus, and perhaps “diversifying” doesn’t make sense.
But what if we want to achieve “diversification?”
