Lesson 4 of 5 · 6 min read
Diversification for beginners
Don't put all your eggs in one basket. Diversification is the simplest way to reduce risk.
Why diversify?
If you put everything on one share, your whole result depends on that single company. If it goes bankrupt, you lose everything. If you spread across hundreds of companies, the group easily absorbs the failure of one company.
More assets, and above all less correlated ones, lower risk without costing you return. Assets that move together barely help.
Diversifying across multiple axes
Good diversification spans multiple dimensions: number of companies, sectors (tech, healthcare, energy...), countries and regions, and sometimes also asset classes (shares, bonds). A global index ETF does much of this at once.
The easy route
For most beginners, one broad, global index ETF (such as an MSCI World or FTSE All-World) is already enormously diversified: thousands of companies across dozens of countries. Simple, cheap and broad — a solid foundation.
Remember this
- Putting everything on one share makes you dependent on that single company.
- Good diversification spans multiple axes: companies, sectors, countries and categories.
- One broad global index ETF gives enormous diversification in a single product.
There is a quiz for this lesson
3 questions that check whether it stuck. They live in the app, because a quiz nobody grades teaches nothing.
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