An appropriate risk premium is the capital market’s compensation to investors for “worrying,” — for taking necessary risks required to generate economic growth and prosperity.  Although it’s true that earning higher rates of return generally requires investors to accept higher levels of risk, it’s also true that financial markets do not compensate investors over the long run for taking unnecessary risks that no one has to bear.  Since a portfolio that is not fully diversified includes unique risks associated with particular companies, an undiversified portfolio includes risk that is partially uncompensated over the long run.