Diversification is the practice of spreading your money across many different investments so that no single one has too much influence over your results. It is one of the most important ideas in investing — often summed up as "don't put all your eggs in one basket."
Why diversification matters: any single investment can perform poorly. If all your money is in one company's stock and that company struggles, your whole portfolio struggles with it. If your money is spread across many investments, a loss in one can be offset by gains or stability in others. Diversification does not guarantee a profit, but it reduces the risk tied to any one holding.
Ways a portfolio can be diversified:
- Across asset types — a mix of stocks, bonds, and funds.
- Across industries — so a downturn in one sector does not dominate.
- Across companies and regions — many holdings rather than a few.
The easiest way to diversify: mutual funds and ETFs are diversified by design — a single fund can hold dozens or hundreds of investments, giving a new investor broad diversification in one step.
Asset allocation: how you divide your money among asset types is usually matched to your goals and how long until you need the money. An RMO Investments adviser can help you build an allocation that fits.
Investments are not FDIC insured, are not bank guaranteed, and may lose value. RMO Investments, Inc. is a separate entity from RMO Bank. This article is general information, not tax or investment advice.