Value of Diversification

It’s not always easy to grasp the value of diversification—why, in other words, it’s better to own many stocks inside a mutual fund than one or two stocks on their own. But recent research conducted by Arizona State U. finance professor Hendrik Bessembinder offers some insight.

Bessembinder is not afraid of numbers. He calculated every […]

What’s Riskier Than the Riskiest Stocks?

Any seasoned investor will tell you that buying one stock is riskier than buying a basket of stocks. The underlying concept is diversification—the idea that the movement of the shares of many different companies, taken together, will be smoother than the trajectory of any one of them.

But the ETF market has managed to create […]

Global Financial Literacy: Haves and Have Nots

A new survey by the S&P organization—the S&P Global FinLit Survey—measured financial literacy across a wide spectrum of countries around the world. More than 150,000 randomly selected individuals in 140 countries were asked to answer five multiple-choice questions regarding investment diversification, the ability of income to stay on par with spending (or vice vers […]

When Diversification Fails

 

Correlation coefficients are one of the most complicated areas of the asset management world, but the idea behind them is pretty simple–or, at least, most of us thought it was until the 2008-2009 meltdown. The basic idea is that you study the price movements of, say, the stocks of large companies (represented by the […]