Stocks of smaller companies (called small caps) often offer strong growth potential, but with higher risks than other kinds of stock. Larger, more established companies (called large caps) may not grow as quickly but tend to offer less risk. Having both in your portfolio can be one way of diversifying. And, because individual industries respond differently to market conditions, you may want to invest in a variety of sectors, such as energy, technology or financials. Investing in certain mutual funds that contain many different stocks also may help you diversify. To find the investment mix that meets your individual needs for diversification, you need to consider several factors, including your degree of comfort with risk and your time horizon - how long you have to reach your goals. If you have a number of years to recover from market downturns, you may want to think about choosing investments with potentially higher risks and rewards. With a shorter time horizon - if, say, you're getting close to retirement - you might want to stay with safer investments. Over time, as some of your investments do better than others, your portfolio may become less diversified. That's why it's usually a good idea to revisit your portfolio regularly and see whether you need to make any changes to bring it back into balance.