What is risk diversification?

Risk diversification is investors strategies for managing risk. The idea is to spread funds across different assets and sectors, so that if there is turmoil in one area, it can be balanced in others. This is the opposite strategy of putting all your eggs in one basket.

Where have you heard of risk diversification?

The term is often used during periods of economic turmoil when there is a great deal of uncertainty in the financial markets. Under this strategy, investors will avoid stock market volatility as much as possible and seek to invest their money in bonds and commodities and other assets.

What you need to know about risk diversification...

All investments have a degree of risk, so you can't avoid it completely. Fortunately, risk diversification strategies can help you avoid excessive risk in specific areas.

Diversification is not simply investing money in different assets. You can also invest in companies of different sizes, industries and regions.

Risk diversification is equally important for the business sector. For example, a company may choose to develop new products and industries, rather than being limited to one area.