In investing, the strategy of spreading money across different assets to reduce exposure to any one investment is called diversification.
Diversification can involve owning different companies, industries, countries, asset classes, or maturities. A diversified portfolio may combine shares, bonds, cash equivalents, property, or other investments. The idea is that poor performance in one holding may have a smaller effect on the overall portfolio.
Diversification cannot eliminate market risk. For example, a broad stock portfolio can still fall during a widespread market decline. It mainly reduces unsystematic risk, which is risk associated with a particular company, sector, or security.
A fund holding many securities may provide diversification, but several funds can still overlap heavily. Investors therefore consider the actual underlying holdings, costs, time horizon, and risk tolerance rather than simply counting accounts.