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What is Diworsification?

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What is Diworsification?

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Diworsification is an investment strategy that is sometimes described as being diversification run amok. Rather than holding a significant number of shares of a given stock, the investor will choose to acquire a few shares of stock in a wide range of companies that are within the same classification. While greatly reducing the degree of risk to the investor, diworsification also tends to guarantee a lower return on the investment. It is important to note that many brokers and financial analysts will encourage investors to diversify the financial portfolio. However, this approach usually takes the form of encouraging the inclusion of different classes or categories of investments. With this type of diverse activity, the idea is to balance out the assets in a manner that maximizes the changes for earning a healthy return, while still minimizing the degree of risk to the overall value of the portfolio. With diworsification, this same basic principle is applied within a class of stocks. Th

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http://www.investopedia.com/terms/d/diworsification.asp “What Does Diworsification Mean? The process of adding to one’s portfolio in such a way that the risk/return tradeoff is worsened. Investopedia explains Diworsification… Investors often achieve this by investing in a number of different mutual funds that have similar investment strategies within the same grouping of shares. A diversification strategy usually involves the accumulation of assets with negative correlations, which reduces risk and can increase potential returns by minimizing the negative effect of any one asset on portfolio performance. However, investing in too many assets with similar correlations will result in an averaging effect where risk is at its lowest level and additional assets reduce potential portfolio returns as well as the chances of outperforming a benchmark.

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