The article emphasizes the importance of diversification in investing, citing Harry Markowitz's idea of it being a "free lunch." While diversification can reduce market risk, it can only do so to a point before remaining risks persist. The piece highlights a Reddit user's concern about having 60% of their assets in one security, showcasing the common investment rule of limiting funds in single stocks. Moreover, it mentions the benefits of index funds like the Vanguard S&P 500 ETF, which offer built-in diversification through a mix of 500 stocks, serving as an accessible portfolio for investors.
Diversification is one of the few "free lunches in investing," as Harry Markowitz, once said. When it comes to free lunch, you'll want a seat at the table.
At the end of the day, there's an unavoidable amount of risk you'll need to bear as an investor in equities.
That said, there are ways to improve upon diversification further.
With the single ETF, you're getting a basket of 500 U.S. stocks.
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