What are the risks of diversification in investing?
An example of an AI chatbot conversation about the risks of diversification in investing.
What are the risks of diversification in investing?
Diversification can reduce risk, but it also has its own risks, such as over-diversification and dilution of returns.
What do you mean by over-diversification?
Over-diversification occurs when an investor holds too many assets, which can lead to lower overall returns and increased complexity.
Can you give an example of how over-diversification might hurt my portfolio?
Sure! If you invest in 50 different stocks, the performance of each stock may be too diluted to significantly impact your overall returns.
Are there any other risks I should be aware of?
Yes, other risks include market risk, sector risk, and the potential for increased transaction costs with more assets.
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