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Why Diversification Is the Only Free Lunch in Investing

Your First Investment • Beginner Investing • 6 min

Economists are famously reluctant to call anything in finance "free" — there's almost always a tradeoff somewhere. Diversification is the one real exception, and it comes from Harry Markowitz himself, the economist whose 1952 work on portfolio construction eventually won him a Nobel Prize: he called diversification "the only free lunch in investing." Here's what he meant: most ways to reduce risk cost you something…

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