Diversification

Imagine you put all your savings into a single company.

It goes bankrupt. You're left with nothing.

It sounds unlikely. Yet it happens all the time.

In two thousand seven, Nokia was worth over a hundred and fifty billion. Five years later, less than twenty.

A new phone came out, and the world's number one became a footnote.

Nobody saw it coming, least of all the people working there.

So how do you invest without betting everything on one name?

You don't pick one. You take them all.

Say there are twelve companies. If one disappears, eleven are left. You barely notice.

In the app, this chapter is animated and narrated, card by card. Start free trial.

Download on theApp Store

On a single line, a bankruptcy costs a hundred percent. Across five hundred lines, it costs two tenths of a percent.

And here's what nobody believes: the expected return doesn't go down.

Same return, far fewer bumps. It's the only free thing in all of finance.

This is what a single stock does.

And this is five hundred stocks together. Same years, same markets.

The bumps didn't vanish. They mostly canceled each other out.

But there's still a trap, and it concerns almost everyone.

Your salary comes from one country. Your home is in that country. Your savings too.

If that country does badly, all three do badly together. That's not three bets, it's one.

Diversifying doesn't mean buying lots of things.

It means buying things that don't fall on the same day.

The easiest way to do it: don't choose.

Take the whole market, and let it do the sorting for you.