Diversification refers to the act of investing in a variety of investments. If you’ve ever heard someone use the term “diversify your portfolio,” this is what they’re talking about. The point of this is to reduce risk by investing in various assets; if one performs poorly, you’ve got the other investments to help boost your portfolio.

Example: When diversifying, the goal is to diversify with investments with similar characteristics and behaviors on the market (while also ensuring that you’re investing in different asset classes). If you already have an investment property, purchasing another one won’t help you diversify. Instead, look into a different asset class like shares or bonds.

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