Diversification: Why it matters to you

Spreading out your money across different investments can help you reduce risk.

March 18, 2021

Diversification: Why it matters to you

Have you ever heard the expression “don’t put all your eggs in one basket”? This saying sums up why it makes sense to “diversify” your investments.

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, mutual fund, or exchange-traded fund (ETF), or keeping it in cash, you invest in a mix of some or all of these.

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.