Diversification definition

The act of spreading your investments over a range of different assets, sectors, and geographical regions. This way, if one of these falls in value, the value of your entire portfolio won’t fall with it.

Home Investing glossary Diversification

What is diversification

Diversification means spreading your money across different types of investments – think stocks, bonds, property, even cash – to lower your risk. The idea is that if one investment is having a bad day, others might be doing better and help balance things out.

 

Why does diversification matter?

  • Reduces volatility: not putting all your eggs in one basket helps smooth out big ups and downs.
  • Helps manage risk: different assets react to events in different ways, so you’re less exposed if a single market goes sour.
  • Offers more opportunities: you get to capture potential growth from various parts of the economy, not just one sector.

It’s like comparing eating a fruit salad to eating just one piece of fruit. If one piece of fruit in the fruit salad is a bit funky (maybe a pear that’s slightly too soft) you still have a mix of other fruits to enjoy. That’s diversification in a nutshell!

Capital at risk. All investing should be long term. The value of your investments can go up and down, and you may get back less than you invest.

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Investing glossary

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It's important you know

Capital at risk. All investing should be for the longer term. The value of your investments can go up and down, and you may get back less than you invest. Tax treatment depends on individual circumstances and may be subject to change in the future.

A 25% government penalty applies if you withdraw money from a Lifetime ISA for any reason other than buying your first home (up to £450,000) or for retirement, and you may get back less than you paid into your Lifetime ISA.

Your home may be repossessed if you do not keep up repayments on your mortgage.

Payments you make into your pension won’t be accessible until the minimum pension age (currently 55, increasing to age 57 from 2028). Tax treatment depends on individual circumstances and may be subject to change in the future.

For Business Saver: T&Cs apply. Max one withdrawal per day.

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