Newbie investor terms:

"Diversification" = not putting all your eggs in the same basket.

- Don't invest in just one asset, or even one type of asset.
- You will be badly exposed if it goes belly up.
- Spread the risk, have several "baskets"

What does this mean in practice?

If you have 100% of your money in an individual stock then you'll love it when it goes up and hate it when it goes down, and nobody has perfect foresight....

If you prefer individual stocks, hold AT LEAST 5, preferably closer to 15.

But this does of course mean a lot more work to keep on top of.

Index investing is much MUCH better diversified, but of course you trade away some of the potential reward.

The advantage of diversification is that it helps you keep your risk under control.

I'd suggest also diversifying wider than just domestic stocks. Consider also:

- International stocks
- growth vs value
- bonds
- commodities
- property

It is unlikely all those baskets will turn sour at the same time, so the more variety you have the better...

.. protected you will be against market changes.

For example in the recent stock crash I was glad to have bonds and gold in my portfolio as they counteracted some of the loss.

DIVERSIFICATION IS YOUR FRIEND!