Diversification means spreading investments across many assets so that poor performance in one is offset by others, reducing overall portfolio risk.
Diversification is the practice of not putting all your eggs in one basket. By holding a variety of assets, you reduce the impact that any single losing investment has on your overall portfolio.
The principle works because different assets often move independently. When one falls, another may hold steady or rise, smoothing out your returns and lowering volatility.
You can diversify across asset classes (stocks, crypto, metals), across sectors and regions, and across individual holdings within each class. The goal is to avoid concentration risk.
Diversification does not eliminate risk entirely, and over-diversifying can dilute returns. The aim is a sensible balance that protects you from catastrophic single-asset losses while still capturing growth.
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