Question 1

What does diversification mean in simple terms?

Accepted Answer

Diversification means spreading your money across many different investments instead of putting it all into one. The goal is that no single holding can sink the whole portfolio by itself.

Question 2

Does diversification remove all risk?

Accepted Answer

No. Diversification can lower the risk that comes from one company or one bet, but it cannot remove the risk that the whole market falls at once. That second kind of risk affects almost everything together.

Question 3

What is correlation in investing?

Accepted Answer

Correlation describes how closely two holdings tend to move together. Things that rise and fall in step are highly correlated, so owning many of them gives you less real spread than the number of names suggests.

Question 4

How many holdings do you need to be diversified?

Accepted Answer

There is no magic number. What matters more than the count is whether your holdings actually behave differently from each other, since twenty very similar names still move as one.