Diversification is a method that help reduces the risk of a portfolio by allocating investments across various financial instruments, industries and other categories. Investors can maximize their returns by investing in different type of asset classes, such as stocks, bonds (corporate and government issued), other securities, real estates, loans, commodities, money market accounts and cash.
An example of a diversified portfolio consisted of the following: large cap domestic stocks, small/mid cap domestic stocks, international stocks, domestic corporate bonds, emerging market stocks, government bonds, real estate and cash.
Therefore, a diversification portfolio help investors manage risk and redice the volatility of asset’s price movements. Using diversification method will help investors better set up for long term financial success.