Diversification? What is that?

Diversification is an investment strategy that involves spreading your financial resources across different assets, such as stocks, bonds, real estate, and precious metals, in order to minimize investment risk.

The main idea behind diversification is to avoid concentrating your investments in one asset class or one venture. By doing so, in case one of your investments does not perform as expected or an unforeseen situation occurs, you have other assets that can compensate for those losses.

Diversification can be used by both individual investors and financial institutions, investment funds, or banks. In practice, diversification is one of the key elements of building an investment portfolio.