Diversification transcript You've probably heard the expression "don't put all your eggs in one basket", but what does that really mean? Well it refers to the principle of diversification, and it means, don't put all your money into the one investment, especially if you have large amounts of money to invest. So how do you put this principle into action? Well, if you only have a small amount of money to invest you might consider some form of managed fund where your money is pooled with other investors' money. If you choose a diversified option, such as a balanced or growth fund, your money will be spread across different asset classes. Diversification also applies within asset classes, so if you are building a share portfolio you might consider shares in companies across different sectors, such as resources, banking and financials, consumer staples and healthcare. If property is your thing, you might consider commercial or industrial property as well as residential, and think about balancing your investment portfolio with more liquid assets such as shares and government bonds. However you do it, it's about spreading your money around. This will reduce your overall risk and volatility of returns. ASIC's MoneySmart investment risk tool will test your diversification knowledge to see if you can pick which portfolios are diversified, either across or within asset classes.