What is diversification?
Diversification means spreading money across different assets so no single one decides the whole outcome.
Diversification is the idea of holding a spread of different assets, so that a poor result in one does not decide how the whole portfolio does. The familiar saying about not keeping all eggs in one basket is a plain description of it.
Spreading across and within groups
There are two layers to a spread. The first is across asset groups, such as equity, debt, gold and cash, which behave differently from each other. The second is within a group. Inside equity, money can sit across many companies, sectors and sizes of business. Inside debt, it can sit across issuers and maturities. A portfolio can look spread out on the surface and still be concentrated underneath.
Hidden overlap
Owning several funds does not automatically mean owning a wide range of companies. Two funds from different providers can hold many of the same shares. When that happens, the same business is counted twice in effect, and the portfolio is less spread than the number of funds suggests. Looking at the underlying holdings, not just fund names, shows how much overlap exists.
What diversification does and does not do
A wider spread tends to reduce how much any single holding can move the total, and it can make results less dependent on one outcome. It does not remove risk, it does not prevent losses when many assets fall together, and it does not promise a better result. A very wide spread can also be harder to follow and may dilute the effect of choices that were made deliberately.
How Mandala shows this
Mandala shows a household's split across equity, debt, gold, cash and other groups, looking through hybrid holdings to the mix inside them. It highlights when one holding makes up a large share of the total, and the overlap panel compares funds to show how much of their underlying holdings they share. These views describe the spread that exists today.
Questions the views help answer
- How many asset groups are actually present?
- Does any single holding make up a large share of the total?
- Do two funds hold largely the same companies?
How wide a spread suits a particular household depends on its goals and circumstances, and is a conversation for the household and its adviser.
See it live in Mandala
The Allocation tab in Mandala. Demo data, for illustration only.Related reads
Educational content only, not investment advice. Examples are illustrative, and nothing here is a recommendation to buy, sell or hold any product. Investments are subject to market risks.