# Diversification

Diversification means spreading investments across different asset classes, sectors, and geographies to reduce the impact of any single investment's poor performance on your overall portfolio.

## Why it matters

Diversification is the closest thing to a free lunch in investing. While it won't prevent losses entirely, it ensures that a downturn in one area doesn't devastate your entire portfolio. Concentrated positions — like holding mostly your employer's stock — carry outsized risk that diversification eliminates.

**Example**

An investor with 100% in tech stocks would have lost 33% in 2022, while a diversified portfolio of stocks, bonds, and international holdings might have lost only 15%.

## How Ray helps

Ray analyzes holdings across all your connected investment accounts to flag concentration risk. Run to see how your investments are spread across sectors and asset types.

**Terminal**

`$ ray "is my portfolio diversified?"`

## Related terms

[Asset Allocation](/content/learn/asset-allocation/index.html)  
Asset allocation is how you divide your investment portfolio among different asset classes — stocks, bonds, real estate, and cash.  
[Index Fund](/content/learn/index-fund/index.html)  
An index fund is a type of mutual fund or ETF designed to track the performance of a specific market index, like the S&P 500.  
[Mutual Fund](/content/learn/mutual-fund/index.html)  
A mutual fund pools money from many investors to purchase a diversified portfolio of stocks, bonds, or other securities.  
[Portfolio](/content/learn/portfolio/index.html)  
A portfolio is the complete collection of your financial investments — stocks, bonds, mutual funds, ETFs, real estate, and other assets.  
[Dollar-Cost Averaging](/content/learn/dollar-cost-averaging/index.html)  
Dollar-cost averaging (DCA) is investing a fixed amount at regular intervals regardless of market conditions.

## Try Ray free

Open source, local-first, and takes five minutes to set up.

`$npm install -g ray-finance`  
[View on GitHub](https://github.com/cdinnison/ray-finance)