WealthDiversification (definition)
Diversification means "not putting all your eggs in one basket": spreading your investments across many securities, sectors, countries and asset classes. The goal is to reduce the risk tied to any single holding, without necessarily sacrificing return.
Why it works
When one security or sector falls, others may rise or hold. By owning hundreds of companies through a global ETF, you eliminate company-specific risk: one bankruptcy barely dents you. What remains is market risk, which can't be diversified away.
Diversifying well
- By security: hundreds of stocks rather than a handful;
- By country: avoid home-country bias (Canada ≈ 3% of world markets);
- By class: stocks + bonds (see asset allocation).
An all-in-one ETF delivers instant global diversification in a single purchase.
Frequently asked questions
How many holdings do I need to be diversified?
A few hundred, which a single global index ETF gives instantly. Owning 5 or 10 stocks isn't enough diversification.
Does diversification remove all risk?
No. It removes single-security risk, but not overall market risk. Bonds help reduce the latter.
Can you over-diversify?
Holding several overlapping ETFs adds nothing. One or two broad ETFs are often enough.
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