Diversification

A strategic investment method that involves spreading investments around to reduce the risks of financial loss.

Diversification is a common and effective investment strategy that revolves around committing funds to different asset classes. The goal of this strategy is to ensure that the trader or investor’s figurative eggs are not placed in one basket. Thus, even if there is no significant return on one particular asset class, there will be more positive outcomes for other asset classes.

Diversification is an investment approach based on probability. The higher the number of asset classes that an investor allocates funds to, the lower the odds of financial exposure. In other words, a diversified trading portfolio presents lower financial risks compared to a trading portfolio that is not diversified.