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The Effects of Diversification

Market Measures

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Portfolio diversification spreads investments over many sectors and instruments, reducing the overall amount of industry- and stock-specific risk.

In addition to lowering overall portfolio volatility, diversifying a portfolio also makes it more likely to show positive returns compared to betting on the performance of a single stock.

Tom and Tony show an example of how diversifying a portfolio with elements from the S&P 500 makes the portfolio more likely to perform as well as the market.

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