Don’t put all your eggs in one basket” is the golden rule of investing, known formally as diversification. The goal of a diversified portfolio is to balance risk and reward by spreading investments across various asset classes, industries, and geographies. If one sector—such as technology or energy—experiences a downturn, other sectors like healthcare or consumer staples may remain stable or even grow, cushioning the overall impact on your wealth.
A standard diversified portfolio typically includes a mix of stocks (for growth), bonds (for income and stability), and perhaps real estate or commodities. For the average investor, achieving this manually by buying individual stocks is difficult and expensive. This is where Index Funds and Exchange-Traded Funds (ETFs) come in. These “baskets” of hundreds of different companies allow an investor to own a slice of the entire market with a single purchase, drastically reducing the risk associated with any one company’s failure.
