Diversification
Spreading money across many different investments so no single one decides your fate.
What is diversification?
Diversification means not depending on a single company, country or type of investment. If you hold shares in one company and it goes bust, you lose everything. If you hold shares in a thousand and one goes bust, you lose a thousandth.
Diversification cuts the risk tied to any one firm. It does not cut the risk of the whole market: when every stock market falls, a well-diversified portfolio falls too. In 2008–09 a global developed-markets index lost more than half its value from peak to trough.
For someone in Romania, diversification has one more meaning: income, home and state pension already all depend on the Romanian economy. Savings can be a way not to depend on a single economy.
A single company can go to zero. The world developed-markets index lost at most 57% in dollars from peak to trough (October 2007 to March 2009), then recovered.
Does diversification remove risk?
No. It largely removes the risk of any single firm, but not the risk of the whole market: when every market falls, a diversified portfolio falls too.
How many shares make a diversified portfolio?
The more firms, sectors and countries, the less any single one matters. A fund on a world index reaches hundreds or thousands of firms in one trade.
Related terms
Sources
- MSCI World Index factsheet, 31 August 2026 · www.msci.com
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