Don’t put all your money into one stock, one platform, or one property
As long as multiple assets don’t all rise or fall in perfect unison, spreading your money across them keeps your average expected returns the same, while reducing the ups and downs of your account balance. Conversely, if you invest all your funds in just one stock, platform, or property, any trouble with it directly impacts your entire portfolio.
No cost at all. The hard part is accepting that you won’t…
When several assets do not move in perfect lockstep, diversifying your investments maintains your expected ret…
No cost at all. The hard part is accepting that you won’t always pick the single most profitable option.
When several assets do not move in perfect lockstep, diversifying your investments maintains your expected returns while lowering overall volatility. This is the core conclusion of Markowitz’s 1952 portfolio theory, which has remained foundational for decades. On the other hand, putting all your money into one single stock or platform means its variance becomes your total portfolio variance — any rise or fall in its value directly affects your portfolio, with no other assets to offset losses when problems arise.
Markowitz, H. (1952). Portfolio Selection. The Journal of Finance, 7(1), 77–91. https://doi.org/10.1111/j.1540-6261.1952.tb01525.x
Open source linkIt is set as Grade B because that classic piece of literature is purely mathematical derivation and did not calculate the actual figure of "how much diversification can reduce losses." Diversification can only make the fluctuations in an account smaller; it does not guarantee that you will not incur losses. Buying broad-based index funds (see item 17 of this section) is itself a simple method of diversification. This does not constitute investment advice.