Diversification is a key principle of risk management. The goal is to reduce exposure to single risks.
## Ways to diversify
– **By asset class:** Balance risk and reward.
– **By sector:** Reduces sector-specific risks.
– **By geography:** Add international stocks and emerging markets.
– **By investment style:** Blend aggressive and defensive strategies.
## Benefits of diversification
– Reduces overall portfolio risk.
– Less volatile performance.
– Access to global opportunities.
## Examples
– An investor may hold Apple, Johnson & Johnson, and ExxonMobil.
– Adding bonds and crane company stock REITs.
– Global ETFs like MSCI World Index.
## Risks of over-diversification
– Hard to track everything.
– More funds mean higher fees.
**Conclusion**
Diversification is the cornerstone of smart investing. By balancing stocks, bonds, real estate, and global markets, investors reduce risk.
