This year, I’m grateful for Diversification. Diversification is the only free lunch in investing. Let me repeat that. Diversification is the only free lunch in investing. As an investor, it allows you to dramatically reduce the range of possible outcomes in your investment portfolio, thereby making it easier to reach your financial goals. The range of performance of individual US companies this year was extremely wide and volatile. Think of it as a roller coaster with huge and frequent ups and downs. By diversifying, you were able to avoid some possible very negative outcomes. The video below provides a nice visual of the performance of the S&P500 year-to-date and gives an example of how increasing diversification, in this case by adding in small-cap companies, can help smooth the ride.

Video created by Jan Varsava.