Diversification

Diversification involves proportioning your money so that it is invested in several different areas. It means not putting all your eggs in one basket. While diversification lowers risk, it can lead to money going into investments that either lose money or deliver low returns.

Some will question the need for diversification, pointing out that if all their money was placed into one great investment, then they would achieve the maximum amount of returns. I agreed, however, this is with the benefit of hindsight. In reality, it is much harder to accurately predict which investments will deliver huge profits in the future.

The benefit of diversification is that it gives you a wider exposure to various investments while lowering risk. There are many forms of diversification.