Written by Diversification is important because it helps to mitigate the risk of your portfolio. By spreading investments across different asset classes (stocks, bonds, real estate), sectors (technology, healthcare, etc.), and geographic regions, you reduce the likelihood that a poor performance in one area will significantly harm your overall portfolio. This approach ensures that the success or failure of any single investment has a limited impact on the overall performance.
Diversification can also provide more stable returns. While some assets might be volatile in the short term, others might perform well. For example, stocks may fluctuate, but bonds or dividend-paying stocks may offer more stable returns. In essence, a diversified portfolio is less likely to experience large swings in value, making it a crucial component of long-term investing.
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