What does «diversificación» mean in Spanish?
- Diversification is a portfolio strategy used when purchasing investments to reduce risk exposure. It is used in investments such as stocks, bonds and real estate that move in different directions. The volatility of these investments is limited because not all industries or individual companies move up and down at the same time or at the same rate. Therefore, diversification reduces both the potential for upside and downside risk and allows for more consistent performance under a wide range of economic conditions. In short, diversification reduces risk exposure by spreading investments across the industry rather than limiting them to volatile investments. Spreading or diversifying investments eliminates extremes, protecting against large losses and large gains, but provides a safe and steady return. According to The Digerati Life there are 8 different ways to diversify and manage risk; across asset classes, across asset class variants, across securities or investments within each asset class, across industries and sectors, across financial institutions and fund families, across fund managers, across time horizons and liquidity levels, and across time with dollar cost averaging (Digerati 1-4).