Don't Put All Your Eggs in One Basket
Diversification is the one piece of investing advice that's boring, unglamorous, and consistently correct.
Diversification means spreading money across different stocks, sectors, or asset types so that one bad outcome doesn't sink your entire portfolio at once.
An index fund is the packaged version of this idea: instead of picking individual winners, you buy a fund that holds a whole basket of stocks (like the S&P 500) in one purchase - instant, broad diversification.
Diversification doesn't mean 'owning a lot of stocks' by itself - ten different chipmakers all still move together when the semiconductor sector has a bad day. Real diversification means spreading across things that DON'T all move for the same reason.
Look at your own Watchlist: are the names on it mostly from one sector (say, all tech)? A quick gut check for whether you're actually diversified or just holding a lot of correlated bets.
Sign in to take this lesson's quiz and track your progress.