What is portfolio diversification?

Portfolio diversification is a risk management strategy where an investor spreads their investments across different asset types, industries, or geographic regions. The main idea is to reduce the impact of a poor-performing investment on the overall portfolio. By investing in a variety of assets like stocks, bonds, mutual funds, or real estate, the losses from one investment can be balanced by gains from another. Diversification helps protect the portfolio from market volatility and sudden downturns in specific sectors. It does not guarantee profits, but it is considered a smart and effective way to achieve more stable and consistent returns over time while minimizing overall investment risk.