Diversification: Diversification is the practice of spreading investments across various assets, sectors, industries, and geographic regions to reduce exposure to any single risk. By not “putting all eggs in one basket,” investors can mitigate losses when one investment underperforms. For instance, if tech stocks decline, gains in healthcare or international markets may offset the damage. Diversification works because different assets react differently to economic events. It’s a core principle of risk management and complements other strategies like asset allocation. While it doesn’t guarantee profits or eliminate risk, it enhances portfolio resilience. ETFs and mutual funds make diversification accessible, even for small investors seeking broad market exposure.
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