scorecardAdding risky assets to a portfolio makes it riskier.

Adding risky assets to a portfolio makes it riskier.

The Problem: Adding a risky asset can actually make your portfolio safer.

"One of Nobel prize-winner William Sharpe’s greatest contributions to investment theory came in the realization that if a portfolio holds only low-risk assets, the addition of a risky asset can make it safer. This happens because doing so increases the portfolio’s diversification and reduces the correlation among its components, reducing its vulnerability to a single negative development."

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