How many holdings should I diversify across?

There is no single correct answer — it depends on the assets involved and your goals. Adding more holdings tends to reduce the risk tied to any one security, but if the holdings all tend to move in the same direction, the diversification benefit is limited.

Does diversifying mean I won't lose money?

Diversification is a technique for reducing risk, not a way to eliminate losses entirely. When the market as a whole declines, a diversified portfolio can still lose value overall.

What Is Diversification?

Diversification is the idea of spreading investments across different assets, securities, regions, or points in time to reduce the risk of concentrating on a single target.

Diversification takes several forms: diversifying across assets and securities by allocating funds among multiple holdings or asset classes (stocks, bonds, real estate, and so on); diversifying across regions by investing both domestically and abroad; and diversifying across time by spreading out purchase timing.

Types of diversification

Asset and security diversification: combining multiple assets or securities whose prices move differently from one another
Regional diversification: investing in overseas stocks and assets in addition to domestic equities
Time diversification: buying in installments over multiple occasions rather than all at once (for example, dollar-cost averaging)

Points to keep in mind

While diversification is expected to reduce the size of price swings, it does not guarantee against loss — when the overall market falls, a diversified portfolio can still decline in value. In addition, when the holdings involved are highly correlated with one another, the benefit of diversification becomes limited.

This article is provided for general informational purposes only and does not recommend or solicit the purchase or sale of any specific investment method or security. Final investment decisions are your own responsibility.

Frequently Asked Questions

How many holdings should I diversify across?: There is no single correct answer — it depends on the assets involved and your goals. Adding more holdings tends to reduce the risk tied to any one security, but if the holdings all tend to move in the same direction, the diversification benefit is limited.
Does diversifying mean I won't lose money?: Diversification is a technique for reducing risk, not a way to eliminate losses entirely. When the market as a whole declines, a diversified portfolio can still lose value overall.

What Is Diversification?

Types of diversification

Points to keep in mind

Frequently Asked Questions

Related terms