Diversification is the practice of spreading money across different assets so that no single asset decides the outcome of a portfolio. When one holding falls, others can hold steady or rise, which can soften the effect of one loss on the whole.
Many people start with a single asset. It feels simple: one price to watch and one story to follow. That simplicity carries a trade off, because the whole portfolio rises and falls with that one asset.
This guide explains how portfolio diversification works for investors in Malaysia, how it supports risk diversification, what it cannot do, and how different assets on Luno fit into the picture.
Diversification in plain terms
The idea is old: placing every egg in one basket leaves nothing if the basket drops. In investing, the basket is an asset such as bitcoin, a company share or gold.
Investor education guidance describes diversification as spreading money across different investments to reduce risk, and notes that conditions that hurt one asset class may help another.
Two terms help here:
Volatility describes how far and how fast an asset's price moves.
Correlation describes how closely two assets move together. Assets with low correlation tend to move apart from one another. Assets with high correlation tend to move in step.
Why one asset concentrates the outcome
Concentration happens when one asset makes up most or all of a portfolio. The result then depends on that asset's price, on news about that asset, and on changes in rules that affect it.
The table below uses a hypothetical RM10,000 portfolio. It assumes one asset, called asset X, falls 50% while every other holding keeps its value.
Portfolio | Share held in asset X | Loss when X falls 50% | Portfolio value after |
Single asset | 100% | RM5,000 | RM5,000 |
Two assets | 70% | RM3,500 | RM6,500 |
Mixed holdings | 40% | RM2,000 | RM8,000 |
The figures are an illustration, not a forecast. In practice, other assets can fall at the same time, which the considerations section covers.
How investors diversify a portfolio in Malaysia
Across asset types
Crypto assets differ in purpose, design and the forces that move their prices. Adoption, network upgrades and regulation each affect them in different ways.
Assets serve different purposes. Store of value assets, smart contract platforms and payment networks each respond to different conditions, which gives investors a way to hold more than one type of crypto exposure.
Within crypto
A portfolio can hold several crypto assets with different purposes, such as a store of value, a smart contract network and a payment network. Holding more than one lowers reliance on the outcome of any single network.
Assets also differ in size and age. Larger, longer established assets and smaller, newer assets carry different considerations, such as liquidity and price swings.
Across time
Some investors split a purchase into smaller, regular amounts, a method called dollar cost averaging. It spreads the entry price across several dates. It does not remove the chance of loss.
Considerations when diversifying
Diversification reduces reliance on one asset. It does not remove risk. In a broad market fall, many assets can drop together.
Crypto assets can move together. Research published in 2022 found a significant rise in the correlation between crypto assets and stocks as crypto adoption grew, which means one broad market move can reach many holdings at once.
Number of assets is not the measure. Ten assets that move together offer less spread than three that move apart.
More holdings mean more to track. Each purchase carries fees, and each asset has its own considerations.
Diversification does not guarantee a profit or prevent a loss.
How investors think about building a mix
No single mix suits every investor. People who diversify tend to start with questions such as:
What is the goal, and how long is the time horizon?
How large a fall can the portfolio absorb?
How do the current holdings relate to one another?
What share does each asset hold, and how far has that share drifted since the last review?
Rebalancing means adjusting holdings back to chosen proportions after prices move. Some investors rebalance on a schedule. Others rebalance when a holding passes a set share.
Diversification on Luno
Luno lists a range of crypto assets across different networks and use cases, which gives customers a way to hold more than one type of crypto exposure.
Product availability varies by market and eligibility. Each product carries its own considerations, which Luno sets out on the relevant product page.
Frequently asked questions
What is diversification in simple terms?
Diversification means spreading money across different assets so that no single asset decides the result of a portfolio.
Is holding only bitcoin diversified?
Holding one asset, including bitcoin, is a concentrated position. The price of that one asset decides the result.
How many assets does a diversified portfolio need?
No set number applies. What matters is how the assets relate to one another. Three assets that move apart can spread more than ten that move together.
Does diversification guarantee returns?
No. Diversification can reduce reliance on one asset, but the value of a portfolio can fall.
What is the difference between diversification and asset allocation?
Asset allocation is the split of a portfolio between asset types. Diversification is the spreading of money across and within those types.
