Diversification
Spreading investments across various assets to lower overall risk.
Detailed Description
Diversification
What is the main purpose of diversification in investment?
The main purpose of diversification is to reduce risk by spreading investments across various financial instruments, industries, or asset classes.
What are some types of diversification?
Types of diversification include asset class diversification, geographic diversification, sector diversification, and investment style diversification.
How does diversification help manage risk?
Diversification helps manage risk by ensuring that poor performance in one investment can be offset by better performance in others, leading to more stable returns.
What are the risks of not diversifying a portfolio?
Not diversifying can lead to significant risks, including substantial losses from a concentrated portfolio and greater volatility during market downturns.
What strategies can investors use for diversification?
Investors can use strategies like asset allocation, investing in index funds or ETFs, mutual funds, and regular rebalancing to diversify their portfolios.