One of the most important principles in investing is diversification. The old adage "don't put all your eggs in one basket" is the perfect summary. Diversification is the strategy of spreading your investments across various financial instruments, industries, and asset classes to minimize risk. If one of your investments performs poorly, a well-diversified portfolio ensures that its failure won't sink your entire net worth. The goal of diversification is to reduce "unsystematic risk," which is the risk specific to a single company or industry. For example, if you only own stock in one airline, and that company faces a major scandal or technical issue, your investment could plummet. However, if you also own stocks in technology, healthcare, and consumer goods, the impact of that one airline's poor performance on your overall portfolio will be significantly muted. A fantastic tool for achieving instant diversification is the Exchange-Traded Fund (ETF). An ETF is a type of investment fund that holds a collection of assets, such as stocks, bonds, or commodities. It trades on a stock exchange just like a regular stock. When you buy a single share of an ETF, you are instantly buying a small piece of all the assets held within that fund. For example, buying one share of an S&P 500 ETF (like SPY or VOO) gives you exposure to 500 of the largest companies in the United States. This is a much simpler and more cost-effective approach than trying to buy shares in all 500 companies individually. There are thousands of ETFs available, tracking everything from broad market indices to specific sectors (like technology or healthcare), countries (like Japan or Brazil), or investment styles (like growth or value). Building a diversified portfolio can involve a mix of different ETFs and individual stocks. You might allocate a large portion of your portfolio to a broad market ETF as your core holding, and then add smaller positions in specific sectors you believe will perform well or in individual companies you've researched thoroughly. This combination allows you to benefit from the stability of diversification while still having the potential for high growth from your specific picks.