Spreading your money across many investments so one bad one cannot sink you.
The meaning
The “don’t put all your eggs in one basket” rule of investing. If you spread your money across many different investments instead of betting everything on one, a single bad one won’t usually wipe you out.
Example
All in 1 company−$2,500
Spread over 500−$5
One company drops 50%. Here is what that costs on $5,000.Walk through the numbers
If all $5,000 is in one company and it drops 50%, you lose $2,500. If that $5,000 is spread across 500 companies and one drops 50%, your total barely moves.
Why it matters
It is the closest thing investing has to a free lunch: less risk without giving up much expected return.
For education only and not personalized investment advice. Examples are hypothetical illustrations, not a prediction or a promise of results. All investing involves risk, including the possible loss of principal.
