In this next step, we work to construct a diversification model that is appropriate to that client. Accordingly, one of the first requirements of a prudent investment strategy is to diversify that portfolio. Diversification, of course, is one of the primary strategies of risk management. By having exposure to a number of different asset classes, investors diminish the possibility of a major loss in any one asset class.
Diversification also adds exposure to asset classes that offer the potential for good returns.
Diversification, in effect, helps to smooth out the inevitable ups and downs of the financial markets. All Rights Reserved.