By Brent P. Thomas, CPA, PFS
Diversification is one of the most widely accepted strategies for structuring a successful investment portfolio. In fact, according to Nobel laureate Merton Miller, “diversification is your buddy”—one that mitigates risk and volatility in your portfolio.
What is Diversification?
Simply put, diversification is the process of spreading your portfolio across several asset classes. For example, a diversified portfolio may be invested in several U.S. and foreign stocks, bonds and short-term investments. The logic behind this strategy is that because your portfolio is invested in several asset classes, if one category takes a dip, the rest won’t necessarily follow.