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Diversification Introduction Diversification means investing in assets that respond differently to the same market condition. While one is going down, the other is going up. Diversified portfolio performance represents the average of how these two assets perform and, as such, follows a steady line. You realize the same rate of return as in the first example, but with more long-term stability. Let's assume that you hold two investments — Asset A and Asset B, perhaps two large mutual funds. You may think that you're diversified; however, if Assets A and B move in tandem with each other and respond to market changes and events in similar ways, you're not diversified at all. Your blended portfolio will follow the ups and downs your two assets follow and may be quite volatile. Why do we diversify? Because Winners Rotate! < PREVIOUS NEXT > #40044