Diversification is a fundamental investment strategy that aims to reduce risk by allocating investments across various financial instruments, industries, and other categories. The principle behind diversification is that a portfolio constructed of different kinds of assets will, on average, yield higher returns and pose a lower risk than any individual investment found within the portfolio.

In the context of stocks and exchange-traded funds (ETFs), diversification can be achieved by selecting a mix of assets that respond differently to market conditions. For instance, during economic downturns, certain sectors such as consumer staples may perform better than sectors like technology or discretionary goods. By holding a variety of stocks and ETFs, investors can mitigate the impact of poor performance in any single investment.

Research indicates that a well-diversified portfolio can reduce unsystematic risk—risk that is unique to a particular company or industry—by as much as 70%. This is particularly relevant for individual investors who may not have the resources to conduct extensive research on every potential investment. By utilizing curated selections of stocks and ETFs, investors can benefit from expert insights that guide them toward a balanced portfolio tailored to their financial goals.

ETFs, in particular, offer a practical means of achieving diversification. According to the Investment Company Institute, as of 2022, there were over 2,500 ETFs available in the United States, covering a wide range of asset classes, sectors, and geographical regions. This variety allows investors to easily gain exposure to multiple stocks within a single fund, thus enhancing diversification without the need to purchase each stock individually.