One of the key pillars of investing is diversification. The phrase "don't put all your eggs in one basket" applies to many things in life, and it's especially true for investing. You don't want your portfolio's success (or lack thereof) to depend on just a handful of companies.

To have a truly diversified portfolio, you need to invest in companies of different sizes, sectors, and growth potentials. Accomplishing this by investing in only individual companies can be tough because of the time and research it takes.

Luckily, there's a solution to that problem: exchange-traded funds (ETFs). ETFs are funds that contain numerous different investments within them. Instead of having to invest in a bunch of different companies, you can invest in an ETF and instantly get access to the companies within it.

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Source Fool.com