A well-diversified portfolio would consist of a variety of investments and even cash for emergencies. The important thing is that the choice of investments spreads the risk. Some investments may perform very well in any one year while others may lag. Those performing well will balance out those that are underperforming.

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Diversification spreads the risk. If some investments in the portfolio are showing lackluster performance, they will be balanced by those who show growth. Another term for this strategy is asset allocation.

A Well-Diversified Portfolio Would Consist of a Variety of Investments