Diversification

It is the spread of investment across different stocks, sectories, countries and currencies. Diversification is also known as “spreading of risk” which is a common trait among all investment funds and is labeled as a reducer risk according to Modern Portfolio Theories. Through systematic distribution of investments and assets to various securities, it’s possible to reduce the total risks of a portfolio in comparison to keeping them in individual securities. If investments are also diversified across different investment instruments such as equities, bonds and money - risk is reduced again, making it comparable to a pure equity portfolio. Lastly, spreading investments across a huge geographical area once again reduces risk and increases the portfolio’s return value as you diversify across different geographical areas - one example is adding equities from another country to Swiss equity portfolios. However, diversifying broadly with individuals will require a lot of assets or investment funds to make it happen.