Diversification when investing money: possibilities and limits

What diversification means

BaFin recommends not investing your assets in just one asset but spreading them across different forms of investment. This limits the risk of loss and lets you expect more stable results. This means different asset classes, but also different terms and risks.

How diversification can be put into practice

Anyone who buys individual securities themselves has to put together, monitor and adjust a broad portfolio. With units in a securities fund (Wertpapierfonds), you diversify your risk without having to do this yourself. According to BaFin's guidance, broad diversification usually reduces the risk of loss.

Where the limits lie

• The value of the assets in a fund, and thus of your units, can fall, for example in market turbulence or when companies run into economic problems.
• Nobody can guarantee how things will develop. Investors bear the risks of investing themselves.
• Diversifying across many investments helps little if they all depend on the same risk, for example the same market development.
• Costs also arise with diversified investments: front-end load, ongoing costs and, where applicable, custody account fees reduce the return.

What you can look out for

• Do not spread your money onto a single investment.
• Check how the investments in the portfolio differ and what they depend on.
• Compare costs before buying. Providers must disclose them in advance.
• Review your portfolio regularly.

This article is general information, not investment advice (Anlageberatung). It makes no promises of returns.