Investing is a key part of building long-term wealth, but it comes with risks. Diversification—spreading your investments across different asset classes, industries, and regions—is one of the most effective ways to reduce those risks. No single investment performs well in every market cycle, so combining a variety of assets helps balance potential losses.

A diversified portfolio often includes stocks, bonds, cash equivalents, and sometimes alternative assets such as real estate or commodities. The mix depends on your risk tolerance, time horizon, and financial goals. Younger investors may choose a more aggressive allocation to benefit from long-term growth, while those nearing retirement often prefer stability and lower volatility.

Diversification doesn’t eliminate risk entirely, but it helps create a smoother investment experience and improves your chances of achieving consistent returns over time.