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Diversification reduces risk by spreading money across many companies, sectors, and asset classes, so a poor result in any one place has limited impact. A broad index fund is diversified by design. It does not eliminate market risk, but it removes the avoidable risk of betting too much on a single stock.
Owning one total-market index fund is more diversified than owning five individual tech stocks.
Index funds have outperformed most actively managed funds over every long time horizon. Here is how they work, why they work, and how to use them effectively.
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