As investors, when we think about Risk-Reward analysis, the first thing pop up in our mind automatically will be the word “ diversification”.
This is what been mentioned in Investopedia about the importance of Diversification :
“Diversification is a technique that reduces risk by allocating investments among various financial instruments, industries and other categories. It aims to maximize return by investing in different areas that would each react differently to the same event.
Most investment professionals agree that, although it does not guarantee against loss, diversification is the most important component of reaching long-range financial goals while minimizing risk.”
There is also different types of diversification e.g Asset class Allocation , Diversification by Geographical and Sectors etc .
You may find out the 6 types of diversification from Investopedia :
6 Types of Diversification for Your Portfolio (Click Here )
We knew the importance of diversification but also quite often we hear the other side of story that diversification may have some drawback eg ,overly diversifying an …