"Don't put all your eggs in one basket" is the oldest investing advice there is. It's also the most ignored — especially in Australia, where a single investment property can quietly become someone's entire wealth strategy.

Diversification is simply the practice of spreading your money across different types of investments so that when one zigs, another zags. Here's how it works, in plain English.

Why concentration is risky

If your wealth sits in one property in one suburb, your financial future rides on three things you don't control: that local market, that single tenant, and the tax and interest-rate settings of the day. If any one of them turns, you feel the full force of it.

Spreading your capital means no single event can sink the ship.

The main building blocks

  • Growth assets — shares and property. Higher long-term returns, but more ups and downs.
  • Defensive assets — bonds and cash. Lower returns, but they cushion the falls and provide income.

Within each, you can diversify further: Australian and international shares, large and small companies, residential and commercial property, government and corporate bonds.

Diversification won't make you rich overnight. What it does is smooth the ride and reduce the chance of a permanent, plan-wrecking loss.

What a diversified mix can look like

There's no single "right" portfolio — it depends on your timeframe and how you handle volatility. A younger investor with decades ahead might lean heavily towards growth assets. Someone close to retirement usually holds more defensive assets to protect what they've built.

ETFs and managed funds have made diversification cheap and simple: a single low-cost fund can give you exposure to thousands of companies worldwide.

Getting the mix right for you

Your ideal asset allocation is a personal decision, not a default. It should reflect your goals, your existing assets (including any property and SMSF holdings), your debt and your comfort with risk. This is where a licensed adviser adds real value — turning a generic principle into a portfolio built around your life.