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Key takeaways. Diversification involves spreading your money across a variety of investments and asset classes. A diversified portfolio helps to reduce risk and may lead to a higher return.
The simplest example of diversification is provided by the proverb "Don't put all your eggs in one basket". Dropping the basket will break all the eggs. Placing each egg in a different basket is more diversified. There is more risk of losing one egg, but less risk of losing all of them. On the other hand, having a lot of baskets may increase costs.
The method for quantifying and assessing this potential income loss risk and the volatility that it creates to the company's income statement is profit risk measurement and management. [5] For financial institutions, profit risk management is similar to the diversification strategies [6] commonly used for investment asset allocations, real ...
Example investment portfolio with a diverse asset allocation. Asset allocation is the implementation of an investment strategy that attempts to balance risk versus reward by adjusting the percentage of each asset in an investment portfolio according to the investor's risk tolerance, goals and investment time frame. [1]
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