This practice can help manage volatility because not all stocks move the same way when the broader market swings. It also prevents a big drop in a single security from inflicting major damage on an account. And perhaps most important, diversification can reduce the kind of bad emotional reactions that happen when accounts swing in value.
The S&P 500 slid 1.5 percent between Friday, January 8, and Friday, January 15. It was the index’s sharpest decline since the week ended October 30. The Nasdaq-100 slid 2.3 percent, while the Russell 2000 rallied 1.5 percent. That divergence between big and small has been typical lately as money shifts to value stocks and newer companies.