Diversification is the foundation of risk management. Simply put, it means not putting all your eggs in one basket. A well-diversified portfolio spreads investments across different asset classes, industries, and regions.
The goal isn’t to eliminate risk—it’s to reduce the impact of any single poor performer. For example, a decline in technology stocks may be offset by gains in healthcare or consumer goods. Similarly, international investments may outperform domestic markets in certain years.
Diversification also includes asset types. Stocks provide growth, bonds provide stability, and real estate or commodities can hedge against inflation. The right blend depends on your risk tolerance and time horizon.
Rebalancing is equally important. Over time, certain assets will grow faster than others, throwing off your intended allocation. Reviewing your portfolio annually and making adjustments ensures you stay aligned with your goals.
Diversification may not be exciting, but it’s one of the most reliable ways to build long-term financial security.
