Portfolio Investment

You’ve probably heard the expression “Don’t put all your eggs in one basket.” Diversification is the process of putting that advice into practice. When you diversify, you aim to manage your risk by spreading out your investments. You can diversify both within and among different asset classes. You can also diversify within asset classes. In this case, you divide the money you've allocated to a particular asset class, such as stocks, among various categories of investments that belong to that asset class. As with asset allocation, there is no magic formula for a perfectly diversified portfolio that will work for everyone. In general, though, the more narrowly focused, or concentrated, your portfolio is, the greater the risk you assume.

‌