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  5. Diversification


A technique used by investors that can eliminate risk by investing in a broad variety of assets while simultaneously enhancing one’s portfolio. The term Diversification as used in relation to business, real estate and financial management is an investment technique by which an investor mitigates risk by including by including stocks, bonds, and real estate. Diversification in terms of stock investment will usually consist of a large array of stocks that range from high risk- high return stocks to low risk- low return stocks. This combination of high risk and low risk stocks (and other forms of investment vehicles) are meant to balance one’s portfolio to protect investor’s from instances of loss. Diversification allows investors to capitalize on a number of investments rather than having to rely on a single investment to produce returns. Investors may also diversify their portfolios through international trading to protect themselves from unexpected declines in the economy specifically.

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