← Glossary/Finance
Diversification
Spread money across different things so one bad result does not sink the whole pile.
Example
You put all $100 of birthday money into one company's shares. If that company has a bad year, you lose a lot. Split the same $100 across ten different things, and one company's bad year barely shows up in your total.
How it fits in
Diversification reduces concentration risk when holdings depend on different companies, industries, countries, or asset types. Counts and labels are not enough because many holdings can respond to the same event. A diversified portfolio can still fall sharply, contain overlapping positions, charge high fees, or be unsuitable for a goal. It reduces some sources of loss. It does not guarantee a gain, recovery, or protection during a market-wide fall.
Where this is taught
Practise it on the platform
Related terms
When the money you earn from saving starts earning its own money on top.
Interest paid only on the original amount, never on the interest you have already earned.
Needs are the things that keep you safe and well. Wants make life nicer. Mixing them up is what empties most budgets.