Read in order or choose a section from the contents. All sections are open; collapse those you do not need right now.
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.
Test risk with a simple scenario
If several holdings are issued by companies in the same sector and depend on the same economic factor, many line items do not necessarily mean diversified risk. A decline in sector demand could affect them together.
Imagine a price fall, delayed sale, and currency move occurring in the same period. What funds would you need before liquidity returned? This exercise cannot predict the market, but it can reveal whether an important near-term goal depends on selling at a favourable moment.
Check your understanding
Answer in your own words before opening the reference answer. This is a self-check, not a knowledge assessment.
What is missing from a return-only description?
Show reference answer
A return figure is incomplete without risk context.
What should be checked before a large trade?
Show reference answer
Liquidity matters especially before a large trade.
What are the limits of diversification?
Show reference answer
Diversification reduces concentration, not market risk itself.
This material is educational and does not take account of your objectives, financial position, or risk tolerance.