Final answer:
The phrase 'don't put all your eggs in one basket' is a proverb that emphasizes the importance of diversification as an investment strategy to spread risk across various assets.
Step-by-step explanation:
The phrase 'don't put all your eggs in one basket' refers to the investment strategy known as diversification. Diversification is a strategy that involves buying stocks, bonds, or other investments from a range of companies rather than focusing on a single company or sector. This spreads out the risk because, in a diverse portfolio, the poorer performance of some investments is generally balanced out by the better performance of others. This strategy is crucial for investors looking to minimize their risks and manage potential losses due to market fluctuations or poor decisions by individual firms.
For example, mutual funds are a popular way for investors to achieve diversification since these funds invest in a variety of securities, which can include a mix of stocks and bonds from numerous industries. By investing in mutual funds, individuals can benefit from diversification without having to purchase a wide array of individual securities themselves.