Diversification
التنويع
Diversification is the practice of spreading investments across different securities, sectors, or asset classes so that no single position dominates the portfolio’s outcome. Because asset prices do not all move together, combining them reduces the impact of any one investment’s losses on the whole portfolio. Mutual funds provide built-in diversification by holding many securities in one vehicle.
Example
Ten shares that are all Egyptian banks are far less diversified than they look: they share a regulator, an economy, an interest-rate environment and a customer base, so they tend to fall together.
Why it matters
Diversification is the one improvement available without giving up expected return — it reduces the damage any single failure can do. That is why it is the first thing a fund provides.
A common mistake
Counting holdings instead of exposures. Twenty positions driven by the same underlying factor behave like one position; genuine diversification comes from holding things that respond to different forces.
See it in action