Portfolio diversification is the process of investing your money in different asset classes and securities in order to minimize the overall risk of the portfolio.
Diversification is a technique that reduces risk by allocating investments across various financial instruments, industries, and other categories. It aims to minimize losses by investing in different areas that would each react differently to the same event.
Most investment professionals agree that, although it does not guarantee against loss, diversification is the most important component of reaching long-range financial goals while minimizing risk. Here, we look at why this is true and how to accomplish diversification in your portfolio.
KEY TAKEAWAYS
Diversification reduces risk by investing in different financial instruments, industries, and other categories.
Balancing a diversified portfolio may be complicated and expensive, and it may come with lower rewards because the risk is mitigated.
A diversified portfolio may lead to better opportunities, enjoyment in researching new assets, and higher risk-adjusted returns.
