What is 'Diversification'?

Diversification is an investment approach, specifically a risk management strategy. Following this theory, a portfolio containing a variety of assets poses less risk and ultimately yields higher returns than one holding just a few. ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌

Term of the Day | Words to Know Diversification Diversification is a risk management strategy that mixes a wide variety of investments within a portfolio. A diversified portfolio contains a mix of distinct asset types and investment vehicles in an attempt at limiting exposure to any single asset or risk. The rationale behind this technique is that a portfolio constructed of different kinds of assets will, on average, yield higher long-term returns and lower the risk of any individual holding or security. Read More » Related to "Diversification" The Importance Of Diversification Diversification is a technique that reduces risk by allocating investments among various financial instruments. Read More » 5 Tips for Diversifying Your Portfolio Want to know why diversifying your portfolio is important? Find out five ways you can do it and why you should take up this strategy. Read More » SPONSORED BY INVESCO The Complete Guide to ETFs ETFs are becoming increasingly popular and soaring to new heights among investors. Invesco's insights can help you determine if these investment vehicles are right for you. Learn More » Asset Allocation vs. Security Selection: What's the Difference? Learn how asset allocation and security selection are both important to long-term investment strategies, and understand their different goals. Read More » NEW Podcast: The Investopedia Express with Caleb Silver Big tech stocks have lost their luster as investors rotate into cyclicals hoping that the recovery is real. We go inside the leading economic indicators to look for signs of strength. Listen now on: Apple Podcasts » Spotify » Google Podcasts » Related Definitions Portfolio Management Portfolio Management involves deciding investment mix and policy, matching investments to goals, asset allocation and balancing risk with performance. Read More » Risk Management in Finance In the financial world, risk management is the process of identification, analysis and acceptance or mitigation of uncertainty in investment decisions. Read More » Mutual Fund A mutual fund is a type of investment vehicle consisting of a portfolio of stocks, bonds, or other securities, which is overseen by a professional money manager. Read More » Market Capitalization Market Capitalization is the total dollar market value of all of a company's outstanding shares. Read More » CONNECT WITH INVESTOPEDIA Email sent to: mondemand.forex@blogger.com To update your newsletter preferences or unsubscribe, click here. 114 West 41st St, floor 8 New York NY 10036 © 2020, Investopedia, LLC, All Rights Reserved | Privacy Policy