Build a Diversified Portfolio

As old saying goes "never put all your eggs in one basket", investors should construct a diversified investment portfolio to reduce risks because .....

YT Kum, CFA 04.04.2007
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As old saying goes "never put all your eggs in one basket", investors should construct a diversified investment portfolio to reduce risks because different stocks rise and fall independently of each other.

In general, regional funds (or funds investing in several countries, like BRIC) are more diversified than single country funds in light of their geographical diversification mechanism, presuming that those countries in the region have dissimilar risk factors. However, there are two traps.

The first trap is that investing in countries with similar risk factors cannot help to construct a diversified portfolio. Diversification works when holdings in some countries in the portfolio rise and fall independent

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About Author

YT Kum, CFA  YT Kum is a consultant for Morningstar, contributing to manager selection and asset allocation activities in Asia, and is responsible for providing investment thought leadership on topics relevent to investors in Asia.  

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