Spread the dependence
Diversification distributes an investment portfolio across holdings, sectors, or asset classes. The aim is to reduce dependence on a single outcome. Owning several companies in the same industry may leave substantial exposure to the same economic forces.
A deliberately simple example
Imagine AED 10,000 divided equally among ten holdings: AED 1,000 each. If one holding falls by 50% and the other nine do not move, the portfolio loses AED 500, or 5%. If the entire AED 10,000 had been in that one holding, the loss would have been AED 5,000, or 50%. This isolates the effect of one position; it is not a forecast or a suggested allocation.
Different labels can overlap
Two funds can own many of the same companies. A narrowly focused fund may add little variety to an already concentrated portfolio. Look through the fund name to its holdings, sector exposures, and investment objective. Count what you are exposed to, not just how many products appear on a statement.
What diversification cannot do
Diversification cannot promise a profit or eliminate losses during a broad market decline. In the ten-holding example, if all ten fall by 50%, the portfolio also loses 50%. Spreading holdings reduces the impact of the isolated loss in our example; it does not remove the shared loss.
Sources & further reading
Sources checked 13 November 2026. These organisations provide reference material and do not endorse this website.
