Diversification is a risk management strategy that entails dividing your investment portfolio into different asset types that behave differently in the event that one asset or group declines.
In finance, diversification is a method of attempting to protect an investment portfolio by reducing exposure to the risks associated with any single asset or group of assets. A diversified portfolio includes various types of investments that typically react differently to market conditions. Positive asset performance should compensate for negative asset performance. A well-diversified portfolio may include stocks in companies from various industries and geographies. It may also hold a variety of asset classes including stocks, bonds, cash, and real estate. The way you diversify your assets is determined by the level of risk you are comfortable with, your financial goals, and your investment timeline.