Manyoralloftheproductsfeaturedherearefromourpartnerswhocompensateus.Thismayinfluencewhichproductswewriteaboutandwhereandhowtheproductappearsonapage.However,thisdoesnotinfluenceourevaluations.Ouropinionsareourown.Hereisalistofourpartnersandhere'showwemakemoney.Theinvestinginformationprovidedonthispageisforeducationalpurposesonly.NerdWalletdoesnotofferadvisoryorbrokerageservices,nordoesitrecommendoradviseinvestorstobuyorsellparticularstocksorsecurities.What’sinsideWhatisdiversification?Whyisdiversificationimportant?Doesdiversificationwork?HowtobuildadiversifiedinvestmentportfolioShowMoreWhatisdiversification?Whyisdiversificationimportant?Doesdiversificationwork?HowtobuildadiversifiedinvestmentportfolioWhatisdiversification?Diversificationistheactofspreadinginvestmentdollarsacrossarangeofassetstoreduceinvestmentrisk.It'spartofwhat’scalledassetallocation,meaninghowmuchofaportfolioisinvestedinvariousassetclasses,orgroupsofsimilarinvestments.Sayyouinvestedonlyindifferenttypesofproduce—apples,bananas,broccoli,andspinach—yourgeneralassetclasseswouldbe"fruits"and"vegetables."Investorshavemanyinvestmentoptions,eachwithitsownadvantagesanddisadvantages.Someofthemostcommonwaystodiversifyyourportfolioincludediversificationbyassetclass,withinassetclassesandbeyondassetclass.Diversificationisthesimplestwaytoboostyourinvestmentreturnswhilereducingrisk.Bychoosingnottoputallofyoureggsinonebasket,youprotectyourportfoliofrommarketvolatility.There areplentyoftoolsavailablethathelpmakeiteasytodiversifyyourinvestmentaccounts.» NottheDIYtypeofinvestor?Therearemanydifferenttypesoffinancialadvisorswhocanlendahandwithdiversifyingyourportfolio.Checkoutourpicksforthebestrobo-advisors.DiversificationbyassetclassThethreemaingeneralassetclassesinaninvestmentportfolioarestocks,bondsandcash.Stocks (orequities)allowinvestorstoownapieceofacompany.Stocksofferthehighestlong-termgainsbutarevolatile,especiallyinacoolingeconomy.Bonds (orfixedincome)payinteresttoinvestorswholendmoneytoacompanyorgovernment.Bon