One of the most important principles of successful investing is diversification. Its essence lies in the distribution of investments across different assets and industries, which reduces the overall risk of capital loss due to unfavorable changes in a particular market.
For example, if an investor holds all of his capital exclusively in oil stocks, a sharp drop in oil prices will cause serious damage to his fortune. But if the capital is evenly distributed among several types of assets (stocks, bonds, gold, real estate), the impact of an unfavorable event on individual assets will be smoothed out by the results of other areas.
Optimal diversification includes a combination of high-risk and low-risk assets. For example, aggressive investors can invest the bulk of their capital in technology stocks and a small part in government bonds or bank deposits. Conservative investors often prefer to keep most of their funds in bonds and only a small percentage in stocks.