Diversification

Diversification is the process of dividing your wealth between different investments to avoid being too reliant on any single one doing well.

Diversification is the process of dividing your wealth between different investments to avoid being too reliant on any single one doing well. In plain English, it's all about making sure you don't keep all your eggs in one basket.

The purpose of diversification is to reduce your risk (as measured by the volatility of your portfolio), while maintaining a decent level of return. For example, if you own just one stock, then your portfolio is entirely dependent on the fortunes of that one company. If you own 15, then even if one or two perform badly, or go bust, then the others in your portfolio should help to compensate for the loss.

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