A diversified portfolio is one of the most fundamental concepts in investing. It involves spreading your investments across various asset classes—stocks, bonds, real estate, commodities, and more—to mitigate risk. The goal is to protect your investments from significant losses by not putting all your eggs in one basket.
Why It Works:
Diversification helps balance risk and reward, ensuring that the poor performance of one investment doesn’t drastically affect your overall portfolio. By having a mix of assets, you can benefit from different market conditions and reduce the volatility of your investment returns.
How to Implement:
- Research Asset Classes: Understand the different asset classes and their historical performance.
- Allocate Wisely: Determine the proportion of your portfolio to allocate to each asset class based on your risk tolerance and investment goals.
- Regular Rebalancing: Periodically review and adjust your portfolio to maintain your desired asset allocation.
