How proper diversification benefits your portfolio?
As per Harry Markowitz - The father of Modern Portfolio theory, diversification is the only "free lunch" in finance world. This notion that you’d get something for nothing is nearly unheard of in economics. The key concept behind the “free lunch” is correlation—or rather, a lack of it. Typically, the performance of individual asset classes isn’t perfectly correlated. If asset values do not move up and down in perfect harmony, then a diversified portfolio will have less risk. It protects the portfolio against unexpected or unpredictable events. Diversification is spreading one’s investments to protect against unexpected/ unpredictable events.Continue reading »