Definition of Diversified Portfolio

What is a "diversified portfolio"? What is the definition of the term "diversified portfolio"?

When it comes to the stock market, a diversified portfolio is a portfolio that usually includes a broad mixture of a number of different asset classes.

For instance, a portfolio that is 100% invested in equities can not be considered a diversified portfolio. Instead, a diversified portfolio might look like this:

25% North American equities
25% International equities
40% Bonds
10% Cash

With this portfolio, the investor has a healthy mix of equities and bonds, as well as a bit of cash in case they decide to take advantage of market volatility that produces favorable valuations.

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It's interesting to note that Warren Buffett, who is the greatest investor of all time, is not a big proponent of diversification. Instead, he has no problem taking very large positions in companies that he is confident in. Buffett warns, however, that he is able to take more concentrated positions thanks to his deep knowledge of the companies that he invests in.

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