Diversification is the practice of spreading investments across different sources of risk. It is less about collecting a particular number of holdings and more about understanding how those holdings might behave in different conditions.
Start with the big picture
Look at your mix of asset classes, such as shares, bonds and cash. Each has different characteristics, and the right mix depends on your goals, time horizon and ability to tolerate losses. Diversification can reduce some risks, but it cannot guarantee a profit or prevent losses.
Look within each category
A portfolio of many companies can still be concentrated in a single industry or country. Consider the businesses, sectors, geographies and currencies represented in your holdings. Funds can hold many investments, but a narrowly focused fund may still leave you concentrated.
Check for overlap
Different funds can own the same underlying companies. Reviewing their largest holdings can reveal exposures that are larger than they first appear. You do not need perfect balance; the aim is to make concentrations a conscious choice.
Make it a regular habit
As markets move and your circumstances change, revisit your overall mix. A simple written view of what you own and why can make it easier to spot unintended changes and ask better questions.
This article is for general education only and is not personalised financial advice. Investments can lose value. Consider your circumstances and seek professional advice if appropriate.
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