Diversification
Spreading investments across various assets to reduce risk.
Definition
Diversification is a risk management strategy that mixes a wide variety of investments within a portfolio. The rationale is that a portfolio of different kinds of investments will, on average, yield higher long-term returns and lower the risk of any individual holding or security. Diversification can be achieved across asset classes (stocks, bonds, real estate), within asset classes (different sectors, geographies, company sizes), and across time (dollar cost averaging). While diversification reduces unsystematic risk (company-specific risk), it cannot eliminate systematic risk (market-wide risk). The saying "don't put all your eggs in one basket" captures the essence of diversification.