What is Diversification?
means not putting all your eggs in one basket. In investing, it means spreading your money across different companies, industries, asset types, and geographies so that no single bad outcome can seriously damage your overall .
Why does reduce risk?
Because different investments tend not to move in the same direction at the same time. When one struggles, another might be thriving. When one country's market falls, another might be rising. Owning a mix means the poor performance of one part of your is cushioned by the steadier performance of the rest.
What does a look like?
At its simplest, a might hold a global that invests in thousands of companies across dozens of countries. That single fund provides more than most people could achieve by picking individual . Adding a fund alongside it diversifies further, across asset types as well as geographies.
What does poor look like?
Putting most of your money into one , one , or one country. Investors who held most of their wealth in technology in 2000, or in financial in 2008, learned an expensive lesson about .
Does mean owning lots of things?
Not necessarily. Owning 50 in the same is not truly diversified. Owning three broad covering global equities, , and perhaps real estate can be highly diversified. Quality of matters more than quantity of holdings.