Evidence-Based investing comes from a compilation over more than a half century of many independent peer reviewed research results of how markets work. There are 12 key insights:
Here are the second 3 on Diversity.
4. Diversification is important. It reduces exposure to different kinds of risk and it may improve expected returns when done properly. Having just eggs in a basket is not a balanced diet. You need baskets of fruits, grains, vegetables, meats and cheese too.
5. Manage risk by avoiding concentration risk through diversification. You can diversify market risk, and you can dial in a level of market risk specifically to your needs.
6. Diversity creates a smoother ride.
PS. Analogies that explain the difference between investing and planning (Yes, they are different)! :
- Investing is the fuel for your plan – it is not the plan itself.
- Investing are the cables that support your bridge which is the plan that gets you where you are to where you want to get to.
This blog is not a solicitation; simply an explanation of the basic philosophy and approach.