Portfolio diversification is the process of spreading your assets across different asset classes, geographical areas, sectors and risk levels. The benefits of a diversified portfolio include:
- Risk Reduction
- Exposure to Various Opportunities
- Protection Against Volatility
- Potential Higher Returns
- Adaptability to Changing Markets
The key considerations for diversification are:
- Investment Goals
- Risk Tolerance
- Investment Horizon
- Asset Allocation
- Liquidity
- Number of Assets
- Costs and Fees
- Rebalancing and Reinvesting
- Tax Implications