The saying “don’t put all your eggs in one basket” neatly sums up one of the most important concepts in investing: diversification.
What diversifying means in practice
Diversifying means spreading your money across different types of assets, sectors and even countries, so that the poor performance of a single investment doesn’t compromise the entire portfolio. This applies both across asset classes (stocks, FIIs (Brazilian real estate investment funds), fixed income) and within the same class (several stocks from different sectors, for example).
Diversification doesn’t eliminate risk, it manages risk
It’s important not to confuse diversification with a guarantee of profit. The goal is not to eliminate every possibility of loss, but to reduce the impact of negative events specific to a company, sector or country on the portfolio’s overall result.
Holding ten stocks from the same sector is not a diversified portfolio — it’s concentration disguised as diversification.
Factors usually considered in diversification
- Asset class: fixed income, stocks, real estate funds, crypto assets, among others.
- Economic sector: avoid concentrating everything in companies from the same segment.
- Geography: part of the portfolio exposed to other currencies and economies.
- Time frame: combine short-, medium- and long-term investments according to your goals.
Too much diversification also has a cost
Holding too many assets, without understanding each of them well, can make it harder to keep track of the portfolio and dilute both the risks and the potential returns. The ideal balance depends on the time and interest each investor has to follow their investments.