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Stuart
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Portfolio diversification is a method to lower the risk of an investor's portfolio. Each investor faces some kinds of risks. Risks may arise from the macro-level of the economy, these are called market risks. For example, a recession influences the entire stock market. Diversifying a portfolio can not reduce this kind of risk.
But there are security-specific risks, too. If a company does not perform well, their stock price will fall, even in case of a rising stock market. Diversification can mitigate this type of risk. Investors can make a decision on the size and number of investments they held in their portfolio. As the number of different types of assets increases, the risk of the portfolio decreases.
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