What is diversification?
Diversification is the process of combining many different assets to create your portfolio.
This means having stocks or ETFs that cover not only different companies (so that if one company crashes, your other stocks will minimise your losses), but also different sectors.
For example, you wouldn’t want all of your assets to be in the Tech industry, in case this sector suffers a crash. Instead, you might want assets in Tech, Healthcare, Energy, Commodities, Industrials, Food, and Textiles. That way, if one industry suffers losses, you have stocks in many other sectors to minimise your loss.
You can diversify even further by investing in different types of assets. This could include individual stocks, ETFs, bonds, cash, real estate, and other commodities like Gold and Silver.
A highly diversified portfolio strongly minimises the most common investing risks, but don’t over-diversify by acquiring stocks you don’t really believe in just for the sake of adding more variety!