Diversification means owning a range of investments that don't all move in the same direction at the same time. When one falls, others may hold steady or rise, which smooths out the ride.
Ways to diversify
- Across companies: hold many stocks rather than a few.
- Across sectors: mix technology, healthcare, consumer goods, energy and more.
- Across countries: add international stocks to reduce reliance on one economy.
- Across asset types: combine stocks with bonds and cash according to your goals.
Keep it simple
You don't need dozens of individual stocks. A broad index ETF can give you exposure to hundreds of companies in one purchase. Review your mix once or twice a year and rebalance if one area has grown far beyond your target.
This guide is for education only and isn't investment advice. Investing involves risk, including the possible loss of principal.
