Diversification: don't bet on one thing

Spreading money across many companies, industries and countries lowers the damage any one of them can do.

Why spreading out works

Diversification means owning many investments that don't all move together. When one falls, others may hold steady or rise. You give up the chance of one lucky pick making you rich, and in exchange you avoid one bad pick ruining you.

Layers of diversification

Across companies: hundreds or thousands instead of a handful.
Across industries: tech, healthcare, energy, banks, consumer goods and more.
Across countries: US and international markets take turns leading.
Across asset types: stocks for growth, bonds and cash for stability.

Diversification has limits

It reduces the risk of any single investment failing, but it can't remove market-wide risk. In a broad crash, most stocks fall together. That's why time horizon and asset mix still matter.

Key takeaways

Diversification limits how much any single investment can hurt you.
Spread across companies, industries, countries and asset types.
It doesn't prevent market-wide drops.

Key terms

Diversification: Spreading money across many investments so no single one can do too much damage.
Portfolio: All of your investments taken together.

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