Owning a wide range of assets doesn’t automatically make you diversified. True diversification is about managing uncorrelated risk, not just achieving variety.
Diversification isn’t simply adding more assets to a portfolio — it’s about strategically allocating to assets that behave differently under the same market conditions. A well-diversified portfolio is designed so that, in any environment, some assets are likely to rise while others may fall, balancing the overall risk and smoothing returns over time.
In short:
- Variety – Many different assets.
- Diversification – Many different assets that react differently to the same market event.