3
Fun Things You Can Do (with Stocks)
In this chapter, you will learn about diversification, allocation, compounding, and stock splits. Let’s look at each of these concepts one by one.
Diversification: Avoid Putting All Your Eggs in One Basket
One way to reduce risk is by diversification, so instead of betting your entire portfolio on one or two stocks, you spread the risk by investing in a variety of securities. (A portfolio is made up of securities, including stocks, mutual funds, bonds, and cash equivalents, that you own. You will learn about these products in Chapter 8.) The idea behind diversification is that even if one or two investments go sour, your other investments can make up the losses.
At the most basic level, if you put all your ...
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