Stocks & Investing

Diversification

Spreading your money across many investments so one bad bet cannot sink you.

Diversification is the closest thing investing has to a free lunch. By holding many uncorrelated positions, a disaster in any one of them hurts less. It is why a broad ETF is safer than a single stock, and why running the wheel across a few names beats betting everything on one.

For example

If one stock is 100% of your account and it falls 40%, you lose 40%. If it is one of five equal positions, the same drop costs you 8%.

Related terms

ETF (Exchange-Traded Fund)Asset AllocationPortfolio

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