Diversification

Definition

Diversification is the strategy of spreading investments across different companies, sectors, and asset classes to lower concentration risk.

Why it helps

If one holding drops sharply, diversified portfolios may hold up better because other investments can offset part of the loss.

Simple ways to diversify

• Own broad-market index funds instead of only a few stocks
• Mix domestic and international exposure
• Include both stocks and bonds based on your risk profile
• Rebalance periodically to keep your target allocation

Important caveat

Diversification reduces specific-company risk, but it does not eliminate market risk. In broad downturns, many assets can fall together.