Definition: Diversified investment means that the risk is spread among different types of investments, also known as different asset classes. For example, bonds tend to do well in a soft economy, stocks of small businesses do well in the early part of an economic recovery, while large corporations do well in the latter part of a recovery. U.S. companies do well when the dollar is weak, while foreign companies do well when the dollar is strong, and their exports into the U.S. are relatively cheaper.
In a diversified investment, no matter what the economy does, some asset classes will benefit, so that you have less of a chance of the overall portfolio losing a lot at any given time. Over the long haul, the diversified investment will provide better returns with lower risk.
Also Known As: Diversified Portfolio, Diversification, Portfolio Diversification
Examples: A well diversified investment generally consists of U.S. small cap and large caps, foreign stocks, bonds and commodities.
