Plain-English definitions, reviewed by an independent investor

Diversification

Diversification is spreading money across assets so one bad bet cannot sink the whole portfolio.

(No formula — a risk-layout principle, often shown as correlation)

Why it matters

It is the closest thing to a free lunch in investing: lower risk for similar return.

Owning ten copies of one theme is not diversification; true spread needs low correlation.

Definitions reviewed by the Investing Glossary editorial team.

A broad fund can do it in one purchase; direct stock picks usually need 20+ across sectors.

Yes, it also caps the upside, which is the trade for sleeping at night.