Geographical Diversification is a way of reducing portfolio risk by avoiding excessive concentration in any one market. Geographical diversification may seem like a lot of work at first; however, it can greatly improve the overall performance of your portfolio. It's also known as "geography" or "market segmentation." The kind of companies that make up your investment portfolio need to be diverse in order to avoid a concentration risk.A common investor mistake is to over-diversify their portfolio. This is often the product of an over-zealous desire to spread their bets amongst various areas of the world, rather than simply investing in one asset class.A diversified portfolio will help you achieve higher returns with less risk. The more stocks you own in a single company, the greater your risk of losing money on that investment.When you invest in an index fund, that fund buys shares in all the stocks in an industry. Even though these stocks are all essentially the same, one of these may sell at a better price than the others, so that your money would be better invested elsewhere.
