How to Build a Diversified Portfolio

Diversification means owning assets whose returns do not move together, so that a bad outcome in one holding does not decide your whole result.

Start with allocation

Your split between stocks, bonds and cash explains most of your portfolio's behaviour.

• Time horizon sets your capacity for risk

• Temperament sets your tolerance for it

• The lower of the two should drive your allocation

Rebalance on a rule

Rebalance annually or when a sleeve drifts more than five percentage points from target. A rule beats a forecast.