Diversification is a technique that reduces risk by allocating investments among various financial instruments, industries and other categories. It aims to maximize return by investing in different areas that should each react differently to changes in market conditions.
A stock is considered risky when it does not have a lot of earnings history. This is important because it proves to investors that the company has a history of generating cash for the business. Another aspect that makes a stock risky is the lack of time on the market. If the stock has recently gone public, it will be more volatile due to investors not knowing how the stock should be valued.
The Standard and Poor's 500, or simply the S&P 500, is a stock market index tracking the performance of 500 large companies listed on stock exchanges in the United States. It is one of the most commonly followed equity indices.