Diversification

Diversification means spreading your money across many different investments so that no single one can sink your portfolio. By owning a mix of companies, industries, and asset types, the poor performance of one holding can be offset by others. It is often called the only free lunch in investing because it reduces risk without necessarily reducing expected return.

Build a portfolio across sectors and asset classes rather than concentrating in one stock or theme. Index funds and ETFs make broad diversification simple in a single purchase. Avoid over-diversifying to the point you cannot follow your holdings, and remember that diversification reduces company-specific risk but not overall market risk.

An investor with everything in one tech stock could lose half their money if that company stumbles. Spreading the same money across 30 companies in different industries means one bad performer has only a small effect on the whole portfolio.