Investopedia

Diworsification

Dictionary Says

Definition of 'Diworsification'

The process of adding investments to one's portfolio in such a way that the risk/return trade-off is worsened. Diworsification is investing in too many assets with similar correlations that will result in an averaging effect. It occurs where risk is at its lowest level and additional assets reduce potential portfolio returns, as well as the chances of outperforming a benchmark.

The term was coined by legendary investor Peter Lynch in his book, "One Up Wall Street," where he suggested that a business that diversifies too widely, risks destroying their original business, because management time, energy and resources are diverted from the original investment.

Investopedia Says

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.

Diworsification is a play on the word diversification. The diversification strategy usually involves an 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.

Articles Of Interest

  1. 5 Tips For Diversifying Your Portfolio

    A diversified portfolio will protect you in a tough market. Get some solid tips here!
  2. Introduction To Investment Diversification

    Reducing risk and increasing returns in your portfolio is all about finding the right balance.
  3. The Importance Of Diversification

    Without this risk-reduction technique, your chance of loss will be unnecessarily high.
  4. Top 4 Signs Of Over-Diversification

    Learn how to spot over-diversification in your portfolio and find out why some financial advisors are motivated to do it.
  5. 4 Key Factors To Building A Profitable Portfolio

    Buying stocks is a careful balance of risk and reward. Learn to identify your risk tolerance and financial goals with these fundamental tips.
  6. When Geographic Diversification Fails

    Geographic diversification is becoming an ineffective investing strategy, but there are others that pay off in the long term.
  7. Diversification Beyond Stocks

    If you think holding several stocks means you're diversified, think again - there's much more to be done to reduce portfolio risk.
  8. The Dangers Of Over-Diversifying Your Portfolio

    If you diversify too much, you might not lose much, but you won't gain much either.
  9. Mutual Funds Are Awesome - Except When They're Not

    This investment is very popular, but that doesn't mean it comes without risk.
  10. Diversification: Protecting Portfolios From Mass Destruction

    This investing strategy retains its charm as a protection against random events in the market.
comments powered by Disqus
Marketplace
Hot Definitions
  1. Cost-Push Inflation

    A phenomenon in which the general price levels rise (inflation) due to increases in the cost of wages and raw materials.
  2. Happiness Economics

    The formal academic study of the relationship between individual satisfaction and economic issues, such as employment and wealth.
  3. Affluenza

    A social condition arising from the desire to be more wealthy, successful or to "keep up with the Joneses." Affluenza is symptomatic of a culture that holds up financial success as one of the highest achievements.
  4. Icarus Factor

    The term Icarus factor describes a situation where managers or executives initiate an overly ambitious project which then fails. Fueled by excitement for the project, the executives are unable to reign in their misguided enthusiasm before it is too late to avoid the failure.
  5. Angelina Jolie Stock Index

    An index made up of a selection of stocks from companies associated with actress Angela Jolie.
  6. Consequential Loss

    The amount of loss incurred as a result of being unable to use business property or equipment.
Trading Center