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Diversification
Investierenab 13 J.
Spreading risk: distributing money across different investments so that the loss of one doesn't endanger your whole wealth. “Don't put all your eggs in one basket.”
Diversification means not putting all your eggs in one basket. Instead of investing all your money in a single share, you spread it across many different investments – different companies, sectors, countries and asset classes.
Why? If a company goes bust, you lose 100% with a single share. With an ETF holding 1,500 companies, the loss is minimal. The risk is spread.
Practical example: instead of putting €10,000 into Adidas shares, you buy an MSCI World ETF. If Adidas loses 50%, you lose €5,000 with the single share. With the ETF (where Adidas makes up only 0.05%) it's €2.50.
Did you know? Warren Buffett, the legendary investor, advises ordinary investors: “Just buy a low-cost S&P 500 index fund.” Even he relies on diversification for the average person.
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