Diversification is a key principle of investing. Learn how to spread your investments across different asset classes to reduce risk.
Diversification is a risk management strategy that involves spreading investments across various asset classes, sectors, and geographic regions.
Why Diversify?
Diversification helps reduce the impact of poor performance in any single investment on your overall portfolio. It's a fundamental principle of risk management.
Asset Allocation
Consider diversifying across:
- Stocks (equities)
- Bonds (fixed income)
- Real estate
- Commodities
- Cash and cash equivalents
Geographic Diversification
Don't limit yourself to domestic markets. International diversification can provide exposure to different economic cycles and growth opportunities.
Rebalancing
Regularly review and rebalance your portfolio to maintain your desired asset allocation as market conditions change.
Conclusion
While diversification doesn't guarantee profits or eliminate risk, it is an essential strategy for building a resilient investment portfolio.
