Nope, that’s not a typo on our site...it’s a real thing. Diworsification is when you think you’re diversifying your portfolio—with the idea that diversification decreases risk by increasing the number of baskets you’re putting your eggs in—but you’re really just making it worse.
So yeah...diworsification just means diversifying, but making things worse instead of better...like over-diversifying.
Don’t panic; we’ll explain the difference between aviators-cool-diversification and flip-up-uncool-diworsification.
Diversification done right means you are invested in a way that’s actually diverse, which could mean across different industries (say, ones that would last through a recession, like consumer staples, and ones that wouldn’t but could make big bucks, like cutting-edge tech), different size companies (small, mid, large), and different performances (value, growth, blend). A diverse portfolio looks different for different people—for instance, you’re probably investing more conservatively if you’re 55 than if you’re 25—but the idea is that you don’t have all your eggs in one basket, in case that basket...goes under.
So, diworsifying your portfolio would be if you think you’re diversifying, but you’re really just investing in stocks, ETFs, or what-have-you that are all pretty similar. Like...maybe you’re investing in a bunch of ETFs, feeling really good, until you realize half of them are heavily invested in risky, emerging tech markets...not too diverse. Diworsification just means you should check yoself before you wreck yo-portfolio.
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Finance: What is fund diversification, a...37 Views
finance a la shmoop. what is fund diversification and why is it important?
well ever hear the phrase don't put all your eggs in one basket ? yeah if you do
and there's a pothole, well, this can happen. had she put a few eggs here [woman drives car]
than another few there and then another few there well breakfast might have been
saved. well the same thing works for stocks. sorta ,put all your eggs and
shares of the newly IPO to whatever dot-com and it could be a moonshot. [chart on screen]
SpaceX IPOs at fifty bucks a share and soars to a thousand dollars a share, but
well then the Martians kill the visitors and eat their brains and the spacecraft.
oh well you were rich for at least an hour. that's something right most people [alien on flaming planet]
don't want to live such a volatile life, especially when it comes to thinking
about long-term investing and maybe even retirement. when your entire investment
portfolio is in one stock it can be a wild ride and if you're not a
professional investor it's likely that you'll get weak and sell at just the [woman types at computer]
wrong time .so instead of having to worry about timing and picking just the right
stock most investors buy a basket of stocks which are diverse. like two-thirds
US stocks one-third non-us stocks. maybe twenty percent of your portfolio is
invested in high-growth technology. ten percent is in transportation with a lot [pie chart shown]
of dividend yield. and of course there's always the one percent riboflavin. I
don't forget that. so yeah when you diversify and two or three of your
stocks take a dive, well then not all of your eggs are ruined. there are just one
or two rotten ones in the bunch while the rest are going to be used to cook [smiling man eats eggs]
one heck of an omelette.
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