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Why is investment asset diversification so important?

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Why is investment asset diversification so important?

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A. Diversification theory is based on the premise that market values of some assets tend to rise and fall together, whereas the market value of other assets move in opposite directions. Constructing a diversified portfolio that contains a mix of asset types whose value tends to balance each other out over a period of time greatly reduces your risk and optimizes your potential return in your investment portfolio.

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