Diversification
Diversification means spreading your money across different investments instead of relying on one company, sector or country.
What it means
Diversification means spreading your money across different investments instead of relying on one company, sector or country. If one investment performs badly, the others can help reduce the impact on your overall portfolio.
Instead of investing £10,000 in one company, you invest across thousands of companies worldwide using a global fund.
Why it matters
Diversification reduces the impact of any single investment performing badly.
Owning several bank shares isn't true diversification because they're all exposed to the same industry.
Why can't I just invest in one great company?
You can, but the risk is higher. Nobody knows which companies will perform best. Diversification reduces the cost of being wrong.