Is Diversification A Prudent Strategy?

One of the often used terms in investing is diversification. Diversification is the process of spreading investments across different asset classes, industries and geographies to reduce the overall risk of an investment portfolio. The idea is that by holding a variety of investments, the poor performance of any one investment potentially can be offset by the better performance of another, leading to a more balanced overall return. Diversification thus aims to include assets that are not highly correlated with one another.