Investing with Exchange Traded Funds Made Easy: Higher Returns with Lower Costs—Do It Yourself Strategies Without Paying Fund Managers

Chapter 6. Diversification: The Only Free Lunch on Wall Street

If you have ever received professional financial advice, you are likely to have heard that diversification is good. Unfortunately, the individual investor almost never gets to see what difference diversification has made—or might be likely to make—in the future. In this chapter, you will see that diversification can be good—in the sense of improving the balance between risk and reward. But diversification in your investments is often more difficult to achieve than you might think. If you are investing in ETFs, most of which are well diversified to begin with, diversifying among multiple ETFs is likely to incrementally improve the risk-adjusted performance of your investments. However, ...