Blame Hollywood or social media, but most people have the wrong idea about investing.
It’s often portrayed as picking a single 'winner' – like Apple, Tesla, or BP – and simply hoping for the best. Buying low, selling high, and crossing your fingers in the middle.
If that was the whole story, investing would be far riskier (and far less popular) than it actually is.
The reason real investing is more reliable comes down to one word: diversification.
So how does it work?
Putting all your money in one stock would be great… if that stock did well. But picking winners is notoriously hard. Even the professionals struggle to do it consistently.
That’s where diversification comes in. Rather than betting on a single horse, you’re effectively buying the racecourse – spreading your eggs across many baskets, not just one.
One stock = high risk
To illustrate that, let’s look at the performance of a randomly chosen stock, from 2016 to 2026.
As you can see, it isn’t the smoothest ride, for a very narrow gain. Stocks can achieve high returns, but tend to be more volatile than other investment types. That's why it can be risky to hold just one.
What about lots of stocks?
Okay. Let’s zoom right out, and see how the MSCI World index fared over the same period. It tracks the collective performance of over 2,500 stocks across 23 countries.
There are small wobbles, but the direction is steadier and upward. Individual stocks may have stumbled, but collectively the picture is a healthier one.
What about other asset types?
Some people find investing in just stocks – even a diversified range – still too risky. Choosing bonds is one way to diversify further: they’re essentially loans you make to a company or government in return for regular, fixed interest.
Would you want to invest in bonds and nothing else? They’re more stable than shares, it’s true, though typically deliver lower returns.
But bonds often work well alongside shares because they generally move in opposite directions. When one falls, the other tends to rise – giving your portfolio a natural cushion during market downturns.
One investment, instant diversification
What if you could blend stocks and bonds – and get the best of both worlds – by making just one investment? Without the headache of having to pick them individually?
The good news is that you can. A fund holds multiple individual investments. And in a multi-asset fund, you’ll get exposure to stocks, bonds, cash, and sometimes more. It’s instant diversification.
Lots of assets = lower risk
To see the difference diversification can make, let’s look at the AJ Bell Balanced fund. It’s one of our AJ Bell multi-asset funds looked after by our award-winning investment team.
In the chart below, you can see how it compares to investing almost entirely in stocks (IA Global) or almost entirely in bonds (IA Global Mixed Bond).
Past performance is not an indicator of future results.
Spreading your money across different assets may mean missing some of the highs you’d get from investing purely in stocks. But it also means a smoother, less risky ride – while still building real wealth over time.
And with a multi-asset fund, there’s another advantage: you leave the hard work of building and rebalancing a portfolio to the professionals.
Funds also come in many different flavours. For example, people investing for the long term and who feel comfortable taking more risk might consider something like the MSCI World index fund that we mentioned earlier.
Someone who needs access to their money sooner might consider a lower risk multi-asset fund instead. Whatever fund you pick, it’s diversification done the easy way.
No, diversification doesn’t feature in many Hollywood films. But it’s at the heart of real-world investing – not relying on one stock, but building a balanced portfolio and letting it grow steadily over the long term.
Start diversifying with Dodl
With Dodl, you can choose between shares and ETFs (a type of fund that tracks the performance of an index, e.g. the FTSE 100).
Or, there’s our AJ Bell funds. Just pick the risk level you’re comfortable with, and our award-winning team will do the rest.
Read more in this series
Don’t have a Dodl account yet? Open yours and get started.
🔔Remember that the value of investments can change, and you could lose money as well as make it. AJ Bell Dodl doesn’t give advice. If you’re not sure about the risks of investing, please speak to a qualified financial adviser.