Why it matters
Dependence on one issuer or exposure makes outcomes vulnerable to that particular source of risk. Looking beneath product names reveals whether a portfolio is genuinely spread out.
A worked example
A portfolio holding several unrelated sectors depends less on one company than a portfolio consisting entirely of that company.
Illustrative example · simplified assumptionsA common mistake
Assuming several funds always mean several independent risks.
Where the idea needs care
Diversification does not eliminate market losses. Different fund labels can conceal overlapping holdings.
Apply the idea
Explain this concept using a different example from your spending, work, business or a policy debate. State what stays fixed and what could change the result.
See the supporting infographic
The written explanation above is the main lesson. This image offers another way to remember it.
Sources and further study
Examples and explanations by Alibomics. Numeric illustrations are not current market quotations.