Diversification

Diversification is the practice of not putting all your eggs in one basket. By spreading investments across many different assets, sectors, and countries, you reduce the risk that any single failure will significantly damage your overall wealth.

The logic is straightforward: different assets rarely move in the same direction at the same time. When one stock falls, another might rise. When domestic markets struggle, international markets may thrive. This natural offset dampens the volatility of a well-diversified portfolio compared to a concentrated one.

Diversification does not eliminate risk—a severe global crisis can pull almost everything down together. But it is one of the most effective tools available to manage the specific risk of individual investments. Low-cost index funds and ETFs make diversification easy and accessible for investors of any size.