From Stocks to Bonds: 10 Essential Portfolio Balancing Techniques

2. Diversification

Diversification is the practice of spreading your investments across various sectors, industries, and geographic locations. This helps to mitigate the risks associated with any single investment or sector underperforming.

While diversification can’t eliminate risk entirely, it can significantly reduce the impact of volatility on your portfolio. A well-diversified portfolio is more likely to withstand market fluctuations and provide more consistent returns over time.