FinLexicon Term Details

Diversification

It does not remove risk, but it can reduce dependence on one outcome.

Category: Risk Management Difficulty: Beginner 1 min read Sample Term

Definition

Diversification spreads investments across different assets, sectors, or instruments to reduce concentration risk.

Case Study

Holding funds across asset classes can soften the impact if one sector or security performs poorly.

Historical Reference

The phrase about not putting all eggs in one basket became a popular shorthand for diversification.

Illustration

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