How to use diversification to reduce investment risk

November 6, 2015 Joe Clark
Computer - Asset Allocation

When you’ve got money invested in the stock market, there’s only one guarantee: there are no guarantees. Despite our technological advances and the impressive resources at our fingertips, there’s nothing that can predict future performance with absolute certainty. The market is affected by a myriad of factors, and everything from public perception to political propaganda to current affairs around the globe can have an impact on whether the price of stocks and bonds rises or falls.

So, unless you’ve got a crystal ball that can pick tomorrow’s winners, the best way to protect your portfolio from market volatility is to diversify your investments. Diversification is an asset allocation technique that reduces overall risk by spreading your money across multiple asset classes and using different financial vehicles.

Proper asset allocation creates a portfolio with the highest likelihood of achieving your goals, while reducing risk to a tolerable level. The concept of diversifying to mitigate portfolio risk is based on a few simple correlations, all of which have been time-tested and proven effective over the past century. Read more

Asset Allocation Diversification Investing