Diversification is the most valuable quality that mutual funds bring to your investments. However, there is a correct amount of diversification, and having too much of it is pointless, just as having too little is risky. Mutual funds provide an easy way to solve this problem.
The idea of diversification is straightforward. Stocks of different kinds of companies tend to do well or do badly at different times. By 'different types of companies' one could mean companies from different sectors, different parts of the world, or with varying financial parameters like different levels of interest cost or forex exposure.
