Why diversification mattersAll investments come with the risk of losing the invested money. By investing in many different assets, investors can mitigate their exposure to individual investments failing: Each investment will only make up a small part of the portfolio, and losses in one area might be offset by gains in another – especially if the individual assets are less correlated. So while investment risk can never be completely eliminated, diversification is widely regarded as a key tool for reducing investment risk and earning consistent returns.
Diversification and returnDiversification revolves around the understanding that some assets will perform better than others, but investors don’t know in advance which ones. The return on a diversified portfolio will always be lower than the highest-performing investment. Conversely, it will also always be higher than the lowest-performing investment. That means more diversified investors will have on average more stable returns and fewer negative outliers.¹
Net returns earned by investors on Mintos in relation to their weighted average Mintos Diversification Score in 2020. In the net return calculations write-offs have been applied to the loans issued by suspended lending companies based on our current recovery estimates. Diversification does not completely eliminate investment risk.