The great diversification myth

Here’s a quick quiz to stimulate your synapses this silly season. Is the following statement true or false?Buying a stock to improve your portfolio diversification is a sensible idea.It sounds reasonable enough. Well-diversified portfolios lower risk by narrowing the range of potential outcomes. And owning stocks in different sectors is a good way to achieve that goal.Your broker will almost certainly agree. He’ll argue you need exposure to different industries in the name of diversification and will be concerned if you challenge the conventions of the day. ‘You have to own the banks’, he’ll say, ‘because they account for 30%...

Here’s a quick quiz to stimulate your synapses this silly season. Is the following statement true or false?

Buying a stock to improve your portfolio diversification is a sensible idea.

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