Should you diversify your investment portfolio?

Investing in the stock market will always come with some risks. But a well-diversified portfolio is one of your best defenses against market downturns or financial crises—not to mention a cornerstone of building long-term wealth. Still, as a beginner investor, you might be wondering how to strategically diversify investments.

What is a good diversified portfolio?

Most well-diversified portfolios are a mix of stocks, bonds, and cash. And you can achieve proper diversification with just 3–5 investments. Plus, that's how several billionaire investors recommend you invest. Below is a complete overview of how to balance risk and reward, a look at asset classes, and five examples of diversified portfolios.

How do investors achieve diversification?

To achieve diversification, investors will blend dissimilar assets together (like stocks and bonds) so that their portfolio does not have too much exposure to one individual asset class or market sector. Investors have many investment options, each with its own advantages and disadvantages.