Diversification is one of the most commonly discussed concepts in investing, yet it is often misunderstood. Owning multiple investments does not necessarily mean a portfolio is diversified. True diversification involves spreading risk across different asset classes, industries, geographic regions, and investment styles.
A well-diversified portfolio helps reduce the impact of any single investment or market segment experiencing a downturn. While diversification cannot eliminate risk entirely, it can help create a smoother investment experience and improve the likelihood of achieving long-term financial objectives through varying market conditions.