Quora Answer: Is Diversifying a Stock Portfolio into Different Stock Classes Really Diversification?

The following is my answer to a Quora question: “Is diversifying in a stock portfolio, across different stock classes, really diversification?”

There are many types of portfolio diversification.  How you diversify is dependent on the overall value of the portfolio, your investment objectives, and investment horizon.  You can diversify according to asset class. At the very least, there should be a mix of debt and equity securities.  You can diversify according to industry, which by itself, is not sufficient if they are all within the same asset class.  You can diversify according to geographic region, which is important to mitigate political and currency exposure.  You can diversify based on the maturity of the assets.  Some, such as bonds and derivatives, are time sensitive.  This is also diversification according to risk profile.  In relation to the question, diversification into different stock classes is diversification if those classes are spread over different industries, sections of the economies in question, and across diverse geographic regions.