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Glossary entry · Trade-offs
Diversification
Definition
The practice of holding many different investments so the failure of any one has limited effect. The closest thing to a "free lunch" in finance — it lowers volatility without much giving up expected return.
Example
Owning 500 stocks via an S&P 500 ETF means no single bankruptcy can wipe you out.
From the lessons
Lesson · 04
Diversification
This term appears in a longer lesson, where the idea gets the proper treatment with examples and a working visualization.
Read the lesson →Related
Trade-offs
Risk
The chance that an investment loses value — and how much it could lose.
Read →Volatility
How wildly an investment's price moves up and down. High volatility = bigger swings.
Read →Bull & bear market
Long stretches of rising prices (bull) or falling prices (bear). Both end, eventually.
Read →Drawdown
How far an investment falls from its peak before recovering. The pain measure.
Read →