Diversification is a powerful investment principle that can reduce risk by spreading your money among different investments.
Take stocks as an example. Individual stocks may perform differently under the same market conditions. By investing in a number of different stocks, you can blunt the effect of a decline in the value of on particular stock with the values of other stocks which may be appreciating.
Investing in an equity mutual fund/unit trust, instead of one specific stock, is a way to accomplish diversification in one single investment.
Diversification can reduce risk by spreading your money into
different investments.
Different asset classes have generally performed differently under the same market conditions. By diversifying among the major asset classes such as stocks, bonds and cash you can reduce the risk of putting all your investments in just one asset class. This kind of diversification is called "asset allocation".
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