Diversification is a risk management strategy that mixes a wide variety of investments within a portfolio. This can be done in order to reduce the impact that any one investment might have on the overall portfolio. For example, if an investor has most of their money invested in stocks, and the stock market takes a downturn, they could lose a significant amount of money. However, if that same investor had also invested in bonds and real estate, their losses would be minimized because those investments would have likely gone up during that time period.While diversification can help to protect investors from volatility in the markets, it does come with its own risks. For example, if an investor spreads their money out too thinly across too many different investments, they may not achieve the desired level of returns for their portfolio as a whole. Additionally, there is always the risk that some investments will perform worse than others despite being part of the same diversified portfolio.Despite these risks however, diversification remains one of the most effective ways to manage investment risk and should be considered by all investors
