Diversification

Diversification is the practice of not concentrating your money in a single company, sector, or country. Because different holdings respond differently to the same event, a diversified portfolio has meaningfully lower volatility than its individual pieces.

It is sometimes called the only free lunch in investing: it reduces risk without a corresponding reduction in expected return. What it removes is the risk specific to one company — the risk that a single employer, product, or fraud takes your savings with it.

It cannot remove market risk. When the whole market falls, a diversified stock portfolio falls too. Protecting against that requires holding different asset classes, not just more stocks.

A single broad index fund holding hundreds or thousands of companies delivers most of the available benefit at very low cost.