Explanation:

Diversification is a risk management strategy that mixes a wide variety of investments within a portfolio. A diversified portfolio contains a mix of distinct asset types and investment vehicles in an attempt at limiting exposure to any single asset or risk. The rationale behind this technique is that a portfolio constructed of different kinds of assets will, on average, yield higher long-term returns and lower the risk of any individual holding or security.

Portfolio holdings can be diversified not just across asset classes, but also within classes by investing in foreign markets as well as domestic markets. The idea is that the positive performance of one area of a portfolio will outweigh the negatives in another.