Risk

Diversification

Spreading money across different investments, so that one problem doesn't decide everything.

Why does it matter?

Companies face different risks, so owning several limits the damage any single one can do.

How do I read it?

It reduces the effect of one company, but not of a broad market decline, when most shares can fall together. Ten companies from the same industry are less diversified than they look.

Example

With all your money in one company, a 50% fall in its share halves your money. Spread equally across 20 companies, the same fall in one of them costs 2.5% of the total.