Diversification is a key strategy in investing that helps reduce risk by spreading your investments across various asset classes, sectors, or regions. Instead of putting all your money into one stock or bond, diversification helps protect your portfolio from volatility in any single investment.

There are several ways to diversify. First, consider investing in different asset classes such as stocks, bonds, real estate, and commodities. Each asset class responds differently to market conditions, so if one performs poorly, others may balance out your losses.

Sector diversification is also important. For example, don’t just invest in technology stocks; include companies from other industries like healthcare, consumer goods, and energy.

Finally, geographic diversification involves investing in both domestic and international markets. This helps mitigate risks associated with political instability or economic downturns in one region.

By building a well-diversified portfolio, you can minimize risk and potentially increase returns over the long term.