Investing · 3 min read
Diversification: Don't Put Every Egg in One Basket
Diversification spreads risk across assets, sectors, and geographies so no single failure can sink your portfolio.
Why it matters
Concentration creates outsized gains and losses; diversification smooths the ride.
Advantages
- Reduces unsystematic risk
- Smoother returns
- Better risk-adjusted performance
Risks
- Over-diversification dilutes returns
- Correlated assets don't diversify
Real-world example
Owning 30 tech stocks isn't diversified — they'll all fall together in a tech downturn.
Key takeaways
- Diversify across asset classes, not just stocks
- Rebalance periodically
- Don't confuse diversification with owning many similar things
Quick quiz
1. Diversification primarily reduces: