Comments on: 6 Investing Rules Revisited Part 3: Diversification allows reducing portfolio risk http://www.thefinancialblogger.com/6-investing-rules-revisited-part-3-diversification-allows-reducing-portfolio-risk/ This is where your finance takes place Thu, 09 Feb 2012 14:46:06 +0000 hourly 1 http://wordpress.org/?v=3.2.1 By: ObliviousInvestor http://www.thefinancialblogger.com/6-investing-rules-revisited-part-3-diversification-allows-reducing-portfolio-risk/comment-page-1/#comment-6391 ObliviousInvestor Mon, 20 Jul 2009 14:55:03 +0000 http://www.thefinancialblogger.com/?p=1785#comment-6391 I think the distinction between diversifiable and nondiversifiable risk is one of the most useful ones in the entire investment industry. No need to take on any risk that won't be compensated with an increase in expected returns. Might as well go ahead and diversify as broadly as possible within each asset class that you decide to own. :) I think the distinction between diversifiable and nondiversifiable risk is one of the most useful ones in the entire investment industry. No need to take on any risk that won’t be compensated with an increase in expected returns. Might as well go ahead and diversify as broadly as possible within each asset class that you decide to own. :)

]]> By: Silicon Prairie http://www.thefinancialblogger.com/6-investing-rules-revisited-part-3-diversification-allows-reducing-portfolio-risk/comment-page-1/#comment-6390 Silicon Prairie Mon, 20 Jul 2009 14:25:11 +0000 http://www.thefinancialblogger.com/?p=1785#comment-6390 It's true that stock market diversification didn't work too well (although some signs point to that simultaneous movement being a temporary effect), but diviersifying between stocks and (safe) bonds would have helped so there is always some protection to be had. It's safe to say that the idea of creating a portfolio of stocks that's as reliable as a bond is dead though :) In some cases it might also make sense to diversify by financial institution if you're at risk of the bank going under and not getting your investments back, by advisor if they would be able to run off with your money (of course it will be a few years before they can think of this again), or by mutual funds if you want protection against a manager becoming out of touch with the market (since there are probably under 10 actively managed funds in north america that would interest me this would be hard to diversify).. It’s true that stock market diversification didn’t work too well (although some signs point to that simultaneous movement being a temporary effect), but diviersifying between stocks and (safe) bonds would have helped so there is always some protection to be had. It’s safe to say that the idea of creating a portfolio of stocks that’s as reliable as a bond is dead though :)

In some cases it might also make sense to diversify by financial institution if you’re at risk of the bank going under and not getting your investments back, by advisor if they would be able to run off with your money (of course it will be a few years before they can think of this again), or by mutual funds if you want protection against a manager becoming out of touch with the market (since there are probably under 10 actively managed funds in north america that would interest me this would be hard to diversify)..

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