Investing jargon made simple: Diversification

Please note this blog post was published over 12 months ago and so may not include the most up-to-date information, for example where regulation around investing has changed.

Rebecca Thomas explains diversification. Subscribe to the True Potential Investor YouTube channel to never miss an episode every Wednesday.

The simple way of explaining diversification is the adage “don’t put all of your eggs in one basket.”

In investing terms, diversification is the process of allocating capital in a way that reduces the exposure to any one particular asset or risk. In other words, your money is spread beyond just one stock, beyond just one industry, beyond one region.

The idea is that risk is reduced, as your money’s value isn’t tied to just one stock. By having a Portfolio with multiple Stocks, if some go down, you may have others that hold steady or go up. As such, your risk is reduced, your money’s value isn’t going to depend on the performance of just one Stock.

We’ve taken this concept further at True Potential Investor. Our Advanced Diversification process means as well as holding thousands of stocks across many asset classes industries and regions, we also diversify by fund manager – each with a different investment strategy.

The great thing about our Fully-Managed Investment Portfolios is that they are globally diversified, meaning that our investment team spread your investments across thousands of global holdings. With access to more than 9,000 professionals in 200 locations around the world, we blend multi-asset investment strategies and create unique opportunities for growth and aim to reduce your risk.

With investing, your capital is at risk. Investments can fluctuate in value and you may get back less than you invest. Past performance is not a guide to future performance. Tax rules can change at any time. This blog is not personal financial advice.

Personal Finance