Diversification and portfolio construction

What is diversification?

Diversification is the process of putting your investment monies into various assets i.e. not putting all your eggs in one basket, or all of your investment monies into one asset or asset class or even assets within one country.

One of the major reasons for diversifying investments is that it can manage or reduce the risk of your portfolio. However it does not eliminate the risks of your investments.

Risk in a portfolio can include losing your money or losing a percentage of your money. It is often measured by the extent of the fluctuation in the performance of your overall portfolio.

Economists say that risk is where your investment does not perform to its expected return.