Diversification minimizes risk from "summary" of Loose Leaf Finance with Connect Access Card by Troy Adair,Marcia Millon Cornett,John Nofsinger
Diversification is a fundamental concept in finance that is designed to spread risk across a variety of assets within an investment portfolio. The idea behind diversification is to reduce the overall risk of the portfolio by investing in a mix of different assets that are not perfectly correlated. By doing so, an investor can potentially increase returns and decrease the volatility of their portfolio. When an investor puts all of their money into one asset, they are putting all of their eggs in one basket. If that asset performs poorly, the investor stands to lose a significant portion of their investment. However, by spreading their investment across multiple assets, the investor can reduce the impact of a single asset underperforming on the overall portfolio. This is because different assets tend to perform differently under vario...
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