Diversification
Spreading investments across many assets so that no single one can sink your portfolio.
What does diversification mean?
By holding a mix of investments that don’t all move together, diversification reduces risk without necessarily reducing expected return. It’s often called the only free lunch in investing.
Related terms
Diversification — frequently asked
How many stocks make a diversified portfolio?
Research suggests owning 20–30 stocks across different sectors removes most single-company risk, but a single broad index fund holding hundreds or thousands of companies achieves far wider diversification instantly and cheaply.
Does diversification reduce my returns?
It smooths them rather than lowering them over time. Diversification cuts the risk of any one holding sinking you, at the cost of not being fully exposed to a single winner — a trade most investors should welcome.