Diversification: Why it matters to you

You’re likely familiar with the expression “don’t put all your eggs in one basket.” This saying sums up why it makes sense to “diversify” your investments.

What is diversification?

Diversification means that you spread your money across a variety of different investments. For example, rather than putting all your savings into a single stock you invest in a mix of stocks and funds.

Why is diversification so important?

If all your money is invested in a single stock and that stock's value declines, the entire value of your account (the money you invested) declines. But if you spread your money across different stocks and other types of investments, this decreases your risk. When one investment declines in value, another may rise. So, diversification helps reduce the impact that a single investment can have on the overall value of your account.

Diversification examples

Here are some basic steps you can take to diversify your investments beyond a single stock:

• Multiple stocks
• A fund
• Multiple stocks and funds
• Multiple stocks and funds spanning different regions or industries

The more you diversify, the more you can reduce your level of risk.

Read more: Diversifying with index funds

Next steps to consider

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