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Money · Guided lesson

Build a diversified core

About 30 minutes
Work at your own pace. Optional videos take extra time.
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Before you begin

The idea in everyday life

A core portfolio should be broad enough that success does not depend on one company, theme, or prediction. Read the fund objective, holdings, index, expense ratio, trading costs, and overlap with anything you already own before buying.

The idea

Diversification trades the chance of being exactly right for resilience against being catastrophically wrong.

Try it

One step at a time.

Use the sample or information you have permission to use. Keep your work as you go. You can pause between steps.

  1. 1

    Read the fund objective and holdings to learn what market it actually tracks.

  2. 2

    Compare each fund’s yearly fee percentage (expense ratio), trading fees, minimum investment, tax features, and shared holdings with other funds. Past returns are only one part of the comparison.

  3. 3

    Choose a simple investment mix, called an allocation, that you can understand and return to its planned proportions. That reset is rebalancing. One fund holding a broad mix can be a valid plan.

  4. 4

    Document what would justify changing the plan, excluding headlines and short-term performance.

Example

See how it works.

Instead of choosing five popular technology stocks, Maya compares a broad-market index fund, an international fund, and a bond fund. She notices that two different fund names own many of the same largest companies, so adding both would not create as much new diversification as it appears.

Check your work

Did you cover these?

  • You inspected the objective, top holdings, expense ratio, and index methodology.
  • No single company or narrow theme accidentally dominates the plan.
  • You can explain what each holding contributes that the others do not.
Your work

What to finish

A one-page portfolio map showing each holding’s role, weight, cost, and overlap.

Common mistake

Watch for this

Owning many funds that all hold the same large companies and calling that diversified.

How can I tell I understand it?

You can explain what each holding contributes that the others do not.

Try 3 questions

Quick knowledge check

Answer all 3 questions. Get at least 2 right and the lesson completes automatically.

Not yet passed

You’ll get an explanation for each answer. Signed in? Your results save to your account.

1Two differently named funds hold almost the same companies at similar weights. What should you check before treating the second as new diversification?
2For a simple fee estimate, a fund's value stays at $5,000 for a year and its annual expense ratio is 0.20%. What is the approximate annual operating cost?
3A portfolio contains $8,000 in one company and $2,000 in a broad fund. Which description overlooks its main concentration?
0 of 3 answeredApply the lesson to a short question, then review the explanation.
4
Finish this lesson

Pass the check. We’ll save the progress.

Answer all 3 questions above and get at least 2 right. You can review the explanations and try again.

Go to the knowledge check
Optional course overview video · same video as Lesson 1
Fidelity InvestmentsWhat Is Diversification?YouTube
Optional course overview

What Is Diversification?

From Fidelity Investments. Watch here or open it on YouTube .

Use Fidelity’s diversification examples to audit your proposed holdings for overlap, sector concentration, and dependence on one market segment.
Tools, templates, and lesson sources

Tools and templates

Tools open in a new tab so you can keep your place here.

Sources and further reading

Explore the references behind this lesson.

SEC Investor.gov — Introduction to investing
FINRA — Investing basics
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