Diversification
Diversification is spreading money across many different investments so a loss on one has less effect on the whole portfolio.
It reduces risk specific to one company (unsystematic risk) but not risk that hits the whole market (systematic risk). Index funds are a cheap way to diversify.
In Journey Shares
ETFs let you invest in a whole group of people at once. →
Related terms
- ETF (exchange-traded fund): An ETF is a fund that holds a basket of investments, such as all the stocks in an index, and trades on an exchange like a single stock.
- Index fund: An index fund is a fund that buys every stock in a market index, such as the S&P 500, in the same proportions, so it matches the market's return instead of trying to beat it.
- Asset allocation: Asset allocation is how you divide a portfolio among types of investment, such as stocks, bonds and cash, based on your goals and tolerance for risk.
- Beta: Beta measures how much a stock tends to move compared with the whole market: a beta of 1 moves with the market, above 1 moves more, below 1 moves less.
- Portfolio: A portfolio is the full set of investments a person or fund owns, such as stocks, funds, bonds and cash.
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