Diversification Is a Decision About Risk, Not Just the Number of Stocks

Owning many stocks does not automatically create a diversified portfolio. If the companies depend on the same economic drivers, they may fall together when conditions change.

Diversification considers sector, company size, geography, asset class and investment style. It cannot eliminate market risk or guarantee gains; its purpose is to reduce the damage that one company, sector or theme can cause. Review what risks are actually owned, not merely how many names appear on a statement.

Why it matters: Owning many stocks does not automatically create a diversified portfolio. If the companies depend on the same economic drivers, they may fall together when conditions change.