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Diversification is the practice of spreading investments across various assets, sectors, and geographies to reduce portfolio risk.
The core principle: don't put all your eggs in one basket. When one investment declines, others may hold steady or rise.
True diversification requires assets that don't move together (low correlation). Simply owning many stocks in the same sector isn't diversified.
Understanding diversification helps you make better investment decisions and plan for taxes. Use our portfolio risk checker to see how it applies to your situation.
