Intermediate
11 min readEducationalPortfolio diversification
Allocation, rebalancing and the difference between many holdings and real diversification.
Allocation is the decision
Long-run results are dominated by how much you hold of each thing, not by entry timing.
Rebalancing
Selling winners back to target is uncomfortable and is the mechanism that harvests volatility.
Diversification vs dilution
Adding a highly correlated asset adds names without reducing risk.
Knowledge check
Answer to reveal the explanation
1. Real diversification requires assets that are…
0 of 1 correct
Key takeaways
- Target weights first.
- Rebalance on a rule, not a feeling.
- Check correlation, not count.
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