What is the concept illustrated by the saying "Don't put all your eggs in one basket"?

The saying "Don't put all your eggs in one basket" illustrates the concept of diversification. Diversification is a risk management strategy that involves spreading investments across various financial instruments, industries, and other categories to reduce exposure to any single asset or risk. The idea is that, by distributing investments, the potential negative impact of a poor-performing asset is mitigated, as other investments may perform well during the same period.

In the context of personal finance and investing, this strategy helps individuals protect their portfolios from significant losses. By not concentrating funds in one area, investors are better equipped to manage volatility and potentially achieve more stable returns over time. This approach encourages variety and balance within investment choices, aligning with the broader principle of reducing risk while still aiming for growth.

While risk aversion refers to the tendency to prefer avoiding loss over acquiring similar gains and is related to investor behavior, diversification specifically focuses on the practical application of spreading investments. Investment strategy encompasses various approaches, and while diversification is a part of it, it is more specific in addressing the concept highlighted by the saying. Financial wisdom relates to broader principles of good money management but does not specifically capture the essence of this particular saying.