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Canadian investors looking to reduce risk could consider diversifying their portfolios. Learn more about diversification.
Diversification is a strategy for reducing risk that involves holding a portfolio of investments that perform well under different and varying conditions. This reduces the investor’s vulnerability to losses, because poor performance by any single security, asset class, industry or other factor will usually be offset by strong performance in another. For example, investing in just one sector or one type of investment is the proverbial idea of putting all your eggs in one basket: If that basket drops, all the eggs will break, but if you put the eggs in various baskets, then you’ll always have some eggs left intact.
Example: “The classic investment book A Random Walk Down Wall Street illustrates the concept of portfolio diversification by describing how the owner of a beach resort might reduce the risk of rainy weather by investing in an umbrella company.”
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