Diversification

Diversification means spreading money across different assets instead of concentrating it. It is the old advice about not putting all your eggs in one basket, and its purpose is to stop one failure from taking everything with it.

What matters is not how many holdings you own but whether they move differently. Buying ten semiconductor stocks is not diversification, because they rise and fall together. Mixing stocks with bonds, or domestic with foreign, is what actually works.

The goal is lower volatility, not higher return. Concentrating and being right pays far more, but being wrong becomes unrecoverable. Diversification trades away some of the upside to remove the chance of ruin.

The simplest route is an index ETF that already holds many companies. A single share spreads you across hundreds of businesses without picking any of them yourself. Splitting too finely, though, makes the portfolio hard to manage and drags returns toward the average. Three or four genuinely different assets capture most of the benefit, so chasing more holdings is rarely worth it.