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1. Diversification-how should one diversify-give examples

Diversification is a risk-management technique that mixes a wide variety of investments within a portfolio in order to minimize the impact that any one security will have on the overall performance of the portfolio. Diversification lowers the risk of your portfolio. Diversification is a risk management technique, spreading your investments to lower your risks, such as buying different stocks, bonds, cash and/or mutual funds. Besides varying the type of investments you buy, you can also buy different types of risk level investments such as some large caps and other small caps instead of all the same type of investments.

> > > Question: How can you be sucessful by diversifying your investments.
 * 1) **Spread the portfolio among multiple investment vehicles**, such as stocks, mutual funds, bonds, and cash.
 * 2) **Vary the risk in the securities**. A portfolio can also be diversified into different mutual fund investment strategies, including growth funds, balanced funds, index funds, small cap, and large cap funds. When a portfolio includes investments with varied risk levels, large losses in one area are offset by other areas.
 * 3) **Vary your securities by industry, or by geography**. This will minimize the impact of industry- or location-specific risks. The example portfolio above was diversified by investing in both umbrellas and sunscreen. Another practical application of this kind of diversification is mixing investments between domestic and international funds. By choosing funds in many countries, events within any one country's economy have less effect on the overall portfolio.