What does Diversification mean?

Diversification means spreading your money across many stocks, sectors, and asset types so no single investment can sink your whole portfolio.

Don't put all your eggs in one basket. Spreading money across many stocks, sectors, and asset types reduces risk — if one company crashes, the others can cushion the blow. ETFs are an easy way to instantly diversify.

Diversification example

$10,000 in one stock that falls 40% leaves $6,000. The same $10,000 split across 20 stocks, with one falling 40% and the rest flat, leaves $9,800 — the bad pick costs $200, not $4,000.

Common beginner mistake

Owning ten stocks from the same industry and thinking you're diversified. If they all fall for the same reason, you hold one bet ten times.