Diversification Definition

Diversification Definition

Learn the definition of diversification and other ETF terminology from the etf.com glossary.

Reviewed by: etf.com Staff
Edited by: etf.com Staff

Learn more about Diversification

Diversification stands as a fundamental principle in ETF investing, embodying the strategic spread of investments across various asset classes or sectors to reduce risk exposure. ETFs inherently facilitate diversification by holding a basket of securities, mitigating the impact of poor performance or volatility in any single holding on the overall portfolio. Diversified ETF portfolios offer investors the potential for stable, long-term growth by minimizing the influence of specific market fluctuations. Understanding the benefits of diversification is essential for investors seeking to construct resilient and balanced portfolios that can withstand the dynamic and unpredictable nature of financial markets.

Related Terms

Asset Allocation, Custom Basket

ETF Glossary is etf.com’s collection of key terms and definitions related to exchange-traded funds. ETFs are investment funds that are traded on stock exchanges, and they can encompass a wide range of asset classes, including stocks, bonds, commodities and more. Given the diverse range of ETFs and the complexity of financial markets, having a clear understanding of ETF-related terminology is instrumental for investors looking to make informed decisions, manage risks effectively and navigate the evolving landscape of ETF investments.