Risk & diversification

Diversification is the practice of spreading your money across many different investments so that no single setback can wipe you out. The core idea is that risks that don't move together partly cancel out: when some holdings fall, others may hold steady or rise, so a mixed portfolio has a smoother, more predictable path than any one bet. It is the investing version of not putting all your eggs in one basket — and it works because it reduces the risk you aren't paid to take (the risk specific to one company or asset) without necessarily sacrificing expected return. Closely related is risk pooling, the principle behind insurance, where many people sharing a common fund turn each person's rare, ruinous loss into a small, predictable cost for all.