When we talk about diversification, it means building a portfolio with assets that are not highly correlated.
"Diversification is a risk management strategy that mixes a wide variety of investments within a portfolio. A diversified portfolio contains a mix of distinct asset types and investment vehicles in an attempt at limiting exposure to any single asset or risk." - Source: Investopedia
Below is a table classifying the various assets and how within each asset class further diversification can be put in place.
Asset classes | -->Sector / Type | -->Geography | -->Risk profiles | Liquidity |
Real Estate | sector | v | variable | low |
Commodities | type | low, variable | high | |
Futures | sector | v | high | high |
Equities | sector | v | high | high |
Bonds | sector | v | low | low, variable |
Exchange-traded funds (ETFs) | sector | v | variable | high, variable |
Cryptocurrencies | type | high | high, variable | |
Collectibles | type | low | low, variable | |
Cash and cash eq | v | low | high |
However, in a massive market plunge
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