◈ GLOSSARY · INVESTING
Diversification.
A definition, in plain English — with the books that teach it.
ClearValue Books · reviewed against sources ·
◈ DEFINITION
What it means
Definition
Diversification means spreading money across many investments so that the failure of any one doesn't wreck the portfolio. It works because different assets don't all fall together — when one zigs, another tends to zag. It doesn't protect you from a broad market crash, but it does protect you from being wrong about a single stock.
◈ IN PRACTICE
Example
Owning 500 companies through an S&P 500 index fund is more diversified than holding three tech stocks. If one of those three goes bankrupt, you lose a third of your money; if one of the 500 goes bankrupt, you barely notice.
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