ICYMI Three important investing terms that confuse investors to their detriment
Diversification
The confusion around the term comes from its lack of precision. How well it works varies from cycle to cycle. In most cases, diversification makes market dips less painful. For example, if Canadian stocks are suffering from a commodity collapse, foreign stocks in other sectors are providing positive returns. Sometimes it averts the decline altogether. And then there are rare instances, such as in 2022 when bonds dropped almost as much as stocks, that it lets the side down.
volatility are used as inputs by banks, hedge funds and other financial firms in their risk-management models. They build strategies based on assumptions about expected volatility. For them, unanticipated downside volatility is a risk. It results in big losses.Article content
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