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Diversification does reduce the risk of losing it all, as it changes the probability distribution (https://en.wikipedia.org/wiki/Probability_distribution https:
by mylittlepony 14y ago
Diversification does reduce the risk of losing it all, as it changes the probability distribution (https://en.wikipedia.org/wiki/Probability_distribution https://en.wikipedia.org/wiki/Probability_distribution). It also reduces the probability of winning a lot, but people like stability.
- confluence 14y agoOnly if the assets are uncorrelated and independent. Otherwise diversification often gives a false sense of security with higher systemic risk (see GFC).
- Someone 14y agoNot "Only if the assets are uncorrelated and independent", but "As soon as the assets are not 100% correlated". That is a huge difference. The dot com bust affected (almost) all tech stocks, but they didn't all go bankrupt.