Investing

Diversification

Diversification spreads investment exposure across different assets so one holding or risk is less able to dominate the entire portfolio.

4 min

Investing 101 • 07

Diversification means not relying on one investment outcome.

You spread exposure across different investments that may behave differently.

The goal is risk management, not eliminating losses.

A diversified portfolio can still fall, especially when many markets decline together.

Diversification can happen across

01Companies02Industries03Countries04Asset classes05Different sources of risk

Number of holdings and diversification are not the same.

01

Many similar holdings

Can still create one concentrated bet.

02

Different exposures

Can reduce dependence on one company, sector or market.

Ten holdings can still be concentrated.

Portfolio A10 bank stocks
Portfolio B10 holdings across several sectors and assets
Holding countSame
DiversificationDifferent

Diversification has limits.

It can reduce some company-specific or concentration risk, but it cannot remove market-wide risk.

Look through the labels and ask

01What do I actually own?02Do several funds hold the same companies?03Am I concentrated in one country or sector?04Do I own different asset types?

Remember this

Diversification is about different exposures, not a bigger pile of tickers.

Spread the risks that do not need to be concentrated.

Lesson complete

Reviewed 2026-08-18

Sources

Ontario Securities Commission, GetSmarterAboutMoneyWhat diversification means for your investments ↗Ontario Securities Commission, GetSmarterAboutMoneyTypes of investments ↗
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