Diminishing Return on Diversification
Gallery:
Site Images Diversification of a stock portfolio to reduce risk works, but only up to a very limited number of stocks. Probably two. We illustrate this graphically in the case where risk is so high we might consider including four or five stocks in our portfolio (e.g., unpredictable R&D+). Beyond this the number of investments per se has little impact on the actuarial outcome of a portfolio.
