Risk and diversification

Risk is not one number

Prices can fall because the whole market moves, an issuer faces a specific event, rates change, or currencies shift. Even a high-quality instrument can be hard to sell quickly without accepting a lower price.

What diversification can do

Spreading capital across different assets reduces dependence on one event, but it does not prevent losses or guarantee a return.

• Do not confuse the number of holdings with genuinely different risks.
• Consider currency, sector, maturity, and issuer.
• Check whether near-term essential expenses can be covered without selling investments.