Diversification
The only free lunch in finance: same expected return, less risk, just by not concentrating.
The Core PrinciplesBeginner 4 min read· Lesson 11 of 13 in Investing Fundamentals
Why it works
Assets that don't move in lockstep partially cancel each other's swings. A 30-stock portfolio across sectors keeps roughly the market's expected return while slashing single-name disaster risk — one bankruptcy costs ~3% instead of everything.
Real diversification
Ten tech stocks is one bet, not ten. Diversify across SECTORS, sizes, geographies, and asset classes (stocks/bonds/cash). Correlations rise in crashes — diversification softens bad years, it doesn't abolish them.
The cost of concentration
Concentration builds fortunes and destroys them; it maximizes variance of outcomes, not expected outcome. Unless you have genuine informational edge, variance is all you're adding.