A risk management strategy that involves spreading your investments across many different assets, sectors, and geographies. The goal is to reduce your exposure to any single investment or asset class. If one investment performs poorly, diversification helps cushion the impact on your overall portfolio.
Instead of investing all $10,000 in one technology stock, you spread it across an index fund containing 500 stocks, a bond fund, and international stocks. If one tech company fails and loses 50 percent of its value, the impact on your total portfolio is tiny because that single company represents only a small fraction of your investments.
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