Diversification means not putting all your eggs in one basket. In investment terms spreading your portfolio out across multiple investments helps insulate you against specific risks in a way that owning a single stock does not.

Mutual funds and Exchange Traded Funds (ETFs) are investment options that provide diversification by allowing you to invest in a broad variety of individual investments through a single security. The “SPY” exchange traded fund, for example, is a single fund you can invest in that mimics an investment in every stock in the S&P 500 index.