How does spreading your investment money across more than one asset category reduce risk?

Question

Quizplus · Accepted Answer

Spreading investments across more than one asset category (diversification) reduces risk by minimizing the impact of poor performance in any single asset category on the overall portfolio. This approach reduces both uncertainty (not knowing what will happen) and volatility (the extent of price fluctuations) because different asset categories often perform differently under the same economic conditions.

How Does Spreading Your Investment Money Across More Than One