What is Diversification?
Imagine putting all your eggs in one basket – if you drop the basket, you lose all your eggs! Diversification is a risk-management strategy that helps to avoid this. It involves investing in a variety of different assets, such as stocks, bonds, and real estate.
Here's the logic behind diversification:
Spread the Risk: By not putting all your money in one place, you're less likely to lose everything if the value of one asset goes down.
Balance the Portfolio: Different asset classes tend to perform differently in different market conditions. Diversification can help to smooth out the ups and downs of the market over time.
Diversification is a fundamental principle of investing, and it's important for anyone who wants to grow their wealth over the long term.
