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When investing, you have a greater chance of losing your money than when you save. Unlike FDIC-insured deposits, the money you invest in securities, mutual funds, and other similar investments are not federally insured. You could lose your “principal,” which is the amount you’ve invested. That’s true even if you purchase your investments through a bank. But when you invest, you also have the opportunity to earn more money. On the other hand, investing involves taking on some degree of risk.
Diversification can be neatly summed up as, “Don’t put all your eggs in one basket.” The idea is that if one investment loses money, the other investments will make up for those losses. Diversification can’t guarantee that your investments won’t suffer if the market drops. But it can improve the chances that you won’t lose money, or that if you do, it won’t be as much as if you weren’t diversified.