Investing
Learn why diversification is one of the most important principles of successful long-term investing and how it helps manage investment risk.
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Diversification is one of the simplest ways to reduce unnecessary investment risk
One of the oldest investing sayings is:
Don't put all your eggs in one basket.
While simple, it captures one of the most important principles of successful investing.
Diversification means spreading your investments across different asset classes, industries, countries and companies rather than relying on a single investment to determine your financial future.
It cannot eliminate investment risk, but it can help reduce unnecessary risk while improving the consistency of long-term outcomes.
In this guide we'll explain:
Diversification is the process of spreading investments across a range of assets rather than concentrating your wealth in one place.
A diversified portfolio might include:
Rather than relying on one investment to perform well every year, diversification recognises that different investments perform differently throughout economic cycles.
No investment outperforms every year.
Markets move through cycles.
Interest rates change.
Different industries experience periods of strength and weakness.
Diversification reduces the impact that poor performance from one investment may have on your overall portfolio.
A common misconception is that diversification simply means owning lots of investments.
That's not necessarily true.
Owning 20 Australian bank shares is not diversified.
Owning investments across multiple:
provides far greater diversification.
Risk cannot be eliminated.
However, unnecessary concentration risk can often be reduced.
Examples of concentration risk include:
A diversified portfolio spreads these risks more effectively.
Successful investing isn't about finding the next winning investment.
It's about building a portfolio capable of performing across many different market environments.
That requires discipline rather than prediction.
The right level of diversification depends on:
Diversification should always support your financial plan rather than exist for its own sake.
No.
Diversification helps manage risk but cannot eliminate market losses.
Many diversified portfolios include international investments because they provide exposure to companies, industries and economies not available in Australia.
Owning many investments is not necessarily beneficial if they all behave in a similar way.
Quality diversification is generally more important than quantity.
About the author
Founder & Principal Financial Adviser
Josh Hampton is the Founder and Principal Financial Adviser at Hampton Wealth Management, helping professionals, families and retirees make confident financial decisions.
Learn the fundamentals of investing in Australia, including risk, diversification, asset allocation, time horizons and common mistakes new investors make.
Last Reviewed: August 2026
Read ArticleLearn what a financial adviser actually does, when professional advice may be valuable, and how financial advice can help Australians build long-term financial confidence.
Last Reviewed: August 2026
Read ArticleGeneral Advice Warning. General information only, this website does not consider your personal circumstances. Before acting on any information, you should consider whether it is appropriate for your objectives, financial situation and needs. The Hampton Group Australia Pty Ltd T/A Hampton Wealth Management is a Corporate Authorised Representative of Beryllium Advisers Pty Ltd (AFSL 528250). Josh Hampton is an authorised representative (1002846) of Beryllium Advisers Pty Ltd (AFSL 528250). Prepared 6 August 2026. Last Reviewed 6 August 2026.
A diversified investment portfolio should reflect your goals, risk tolerance and long-term financial plan, not short-term market trends. If you'd like personalised advice on building or reviewing your investment strategy, we'd be pleased to arrange a complimentary initial meeting.
