What is investment diversification?

Diversifying investments means diversifying risks by investing in a variety of different investment options. That means that you put your money in various asset classesinvests, industries, countries, maturities and risk profiles instead of investing it in a few individual investments.

The idea behind diversification is to reduce risk because losses on one investment can be offset by gains on others. In this way, a portfolio can be less volatile (= fluctuating) overall and achieve a higher return than a portfolio that is limited to a few investments.

In addition, the return is easier to plan in the long term, as you are not as dependent on short-term fluctuations in an asset class.

However, it's important to note that diversification doesn't completely eliminate risk. It only helps to minimize the risk.

Investment funds are a simple example of diversified investment on the capital market. By investing in a variety of securities from different industries and countries, investors can diversify their risk and thus reduce the risk of losses due to fluctuations in individual companies or markets.

If you want to diversify your overall portfolio well, you should include other asset classes in your allocation in addition to capital market investments.

This means that, in addition to capital market investments, venture capital, real estate, private equity and alternative investments such as art or watches, are also added.

As a rule, the more broadly you diversify, the lower the volatility of your own assets.