Diversification

Diversification is an investment strategy that spreads risk by allocating funds across various asset classes, sectors, industries, or countries. It aims to minimize losses by balancing volatile investments, such as equities, with stable ones, like fixed deposits. For instance, an investor might pair stocks from one country with a portfolio of equities from another, reducing exposure to a single market’s fluctuations. By diversifying, the impact of a poor-performing asset is cushioned by others, enhancing overall portfolio stability. This approach leverages the principle that not all investments move in the same direction at once, mitigating risk effectively.