Investing term

What is Diversification?

Holding many different investments so no single one can sink you.

Diversification is owning many different investments so that no single failure can sink you. It's often called the only free lunch in investing: spreading across companies, sectors, and asset classes lowers your risk without necessarily lowering your expected return. The whole point is that not everything you own will go wrong at the same time.

For example

Hold one stock and a scandal can wipe you out; hold 3,000 through an index fund and any single blow-up is a rounding error.

Diversification is taught hands-on in Stage 4 — Stocks, Bonds, Cash & Alternatives.

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Related terms

AlternativesInvestments outside the core stocks/bonds/cash mix — REITs, commodities, gold, crypto.BondA loan from you to an issuer (government or company), repaid with interest on a known schedule.Capital gainThe profit from selling an investment for more than you paid.CommodityA raw physical good like gold, oil, wheat, or copper — priced by the ounce, barrel, or bushel.
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