One Stock vs the Whole Basket
Why an index spreads risk
You have $10,000 to invest. One company in your portfolio just crashed −40% on bad news. How much of your money did it cost? It depends entirely on whether you owned one stock or the whole basket:
hit to your $10,000
Diversification doesn't stop losses — it stops any single company from sinking you. That's the whole point of an index.