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Dave Says: The Meaning of Diversification

Dear Dave,


What exactly do you mean when you talk about diversifying your investments?

Sharon

Dear Sharon,

When it comes to investing, diversification simply means spreading your money around. This helps reduce risk, because you’re not putting all of your money into one company. This way, you won’t lose everything if that one company goes broke. It’s also why I tell people not to put all of their money into their own company’s stock.

I have lots of mutual funds with one or two mutual fund companies. Within those two companies they’re called fund families. Think of it like a brand of soup. Campbell’s® is a brand, but they have all kinds of different soup. I also have money in different banks and in different money market accounts, and I have money in different types of real estate. So, I’ve got several different kinds of investments, but not a million different things running around out there.

If I listed them all out they wouldn’t even take up an entire page. I like to keep things fairly clean and simple, and I encourage you to do the same!

—Dave

* For more financial help visit daveramsey.com.

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