{"id":5469,"date":"2023-01-21T07:37:33","date_gmt":"2023-01-21T07:37:33","guid":{"rendered":"https:\/\/goldenpi.com\/blog\/?p=5469"},"modified":"2026-04-07T09:20:04","modified_gmt":"2026-04-07T09:20:04","slug":"diversifying-investment-portfolio-managing-risk","status":"publish","type":"post","link":"https:\/\/goldenpi.com\/blog\/financial-matters\/diversifying-investment-portfolio-managing-risk\/","title":{"rendered":"Diversifying Investment Portfolio: Managing Risk"},"content":{"rendered":"<p><span style=\"font-weight: 400;\">Uncertainty in the market is always a point of consideration for every investor out there in the world. Getting into uncertainty might lead to a disastrous scenario that might not be in our favor. To swirl in losses is something an investor never desires and to avoid that there is a need to diversify the portfolio. A safer side to be on is by giving thought to diversifying the portfolio.<\/span><\/p>\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_79_2 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/goldenpi.com\/blog\/financial-matters\/diversifying-investment-portfolio-managing-risk\/#What_is_Diversification\" >What is Diversification?<\/a><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/goldenpi.com\/blog\/financial-matters\/diversifying-investment-portfolio-managing-risk\/#What_is_a_Sovereign_Gold_Bond\" >What is a Sovereign Gold Bond?<\/a><\/li><\/ul><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/goldenpi.com\/blog\/financial-matters\/diversifying-investment-portfolio-managing-risk\/#The_Significance_of_Diversification\" >The Significance of Diversification<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/goldenpi.com\/blog\/financial-matters\/diversifying-investment-portfolio-managing-risk\/#1_The_most_obvious_benefit_is_reduced_risk\" >1. The most obvious benefit is reduced risk.\u00a0<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/goldenpi.com\/blog\/financial-matters\/diversifying-investment-portfolio-managing-risk\/#2_The_potential_for_higher_returns\" >2. The potential for higher returns.\u00a0<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/goldenpi.com\/blog\/financial-matters\/diversifying-investment-portfolio-managing-risk\/#3_Provides_protection_against_currency_fluctuations_and_geopolitical_risks\" >3. Provides protection against currency fluctuations and geopolitical risks.\u00a0<\/a><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/goldenpi.com\/blog\/financial-matters\/diversifying-investment-portfolio-managing-risk\/#What_is_Corporate_Fixed_Deposit\" >What is Corporate Fixed Deposit?<\/a><\/li><\/ul><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/goldenpi.com\/blog\/financial-matters\/diversifying-investment-portfolio-managing-risk\/#The_contradiction_of_Buy_and_Hold_strategy_to_the_diversification\" >The contradiction of Buy and Hold strategy to the diversification\u00a0<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/goldenpi.com\/blog\/financial-matters\/diversifying-investment-portfolio-managing-risk\/#The_diversification_models\" >The diversification models<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/goldenpi.com\/blog\/financial-matters\/diversifying-investment-portfolio-managing-risk\/#1_The_traditional_diversification_model\" >1. The traditional diversification model\u00a0<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-11\" href=\"https:\/\/goldenpi.com\/blog\/financial-matters\/diversifying-investment-portfolio-managing-risk\/#2_The_modern_portfolio_theory_MPT_diversification_model\" >2. The modern portfolio theory (MPT) diversification model<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-12\" href=\"https:\/\/goldenpi.com\/blog\/financial-matters\/diversifying-investment-portfolio-managing-risk\/#To_put_it_simply\" >To put it simply<\/a><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-13\" href=\"https:\/\/goldenpi.com\/blog\/financial-matters\/diversifying-investment-portfolio-managing-risk\/#Its_time_to_break_the_Bank_FD_habit\" >It&#8217;s time to break the Bank FD habit<\/a><\/li><\/ul><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-14\" href=\"https:\/\/goldenpi.com\/blog\/financial-matters\/diversifying-investment-portfolio-managing-risk\/#FAQs_on_Diversifying_Investment_Portfolio\" >FAQs on Diversifying Investment Portfolio<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-15\" href=\"https:\/\/goldenpi.com\/blog\/financial-matters\/diversifying-investment-portfolio-managing-risk\/#1_What_is_diversification\" >1. What is diversification?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-16\" href=\"https:\/\/goldenpi.com\/blog\/financial-matters\/diversifying-investment-portfolio-managing-risk\/#2_What_is_the_significance_of_diversification\" >2. What is the significance of diversification?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-17\" href=\"https:\/\/goldenpi.com\/blog\/financial-matters\/diversifying-investment-portfolio-managing-risk\/#3_What_is_the_traditional_diversification_model\" >3. What is the traditional diversification model?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-18\" href=\"https:\/\/goldenpi.com\/blog\/financial-matters\/diversifying-investment-portfolio-managing-risk\/#4_What_is_Modern_Portfolio_Theory\" >4. What is Modern Portfolio Theory?<\/a><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<h2><span class=\"ez-toc-section\" id=\"What_is_Diversification\"><\/span><b>What is Diversification?<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">Diversification is a risk management strategy that involves investing in a variety of assets to spread risk across different asset classes and sectors. This is in contrast to the &#8220;buy and hold&#8221; strategy, which involves investing in one or a few stocks and holding onto them for a long period of time.<\/span><\/p>\n<h4 style=\"text-align: center;\"><span class=\"ez-toc-section\" id=\"What_is_a_Sovereign_Gold_Bond\"><\/span><strong><a href=\"https:\/\/goldenpi.com\/blog\/essentials\/bond-market\/what-is-sovereign-gold-bond\/?utm_source=blog&amp;utm_medium=blog&amp;utm_Diversify\">What is a Sovereign Gold Bond?<\/a><\/strong><span class=\"ez-toc-section-end\"><\/span><\/h4>\n<h2><span class=\"ez-toc-section\" id=\"The_Significance_of_Diversification\"><\/span><b>The Significance of Diversification<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<h3><span class=\"ez-toc-section\" id=\"1_The_most_obvious_benefit_is_reduced_risk\"><\/span><b>1. The most obvious benefit is reduced risk.\u00a0<\/b><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p><span style=\"font-weight: 400;\">By spreading your investments across different sectors and assets, you minimize the risk of losing everything in case of a market downturn. This is because different sectors and assets will perform differently in different market conditions.<\/span><\/p>\n<h3><span class=\"ez-toc-section\" id=\"2_The_potential_for_higher_returns\"><\/span><b>2. The potential for higher returns.\u00a0<\/b><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p><span style=\"font-weight: 400;\">By diversifying you have the potential to earn higher returns than if you had invested all your money in one sector or asset. It\u2019s for a reason that different sectors and assets will perform differently in different market conditions.<\/span><\/p>\n<h3><span class=\"ez-toc-section\" id=\"3_Provides_protection_against_currency_fluctuations_and_geopolitical_risks\"><\/span><b>3. Provides protection against currency fluctuations and geopolitical risks.\u00a0<\/b><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p><span style=\"font-weight: 400;\">By investing in different geographic regions, you can reduce the risk of losing money due to currency fluctuations or geopolitical risks. Again as it is known different countries and regions will be affected differently by currency fluctuations and geopolitical risks.<\/span><\/p>\n<h4 style=\"text-align: center;\"><span class=\"ez-toc-section\" id=\"What_is_Corporate_Fixed_Deposit\"><\/span><a href=\"https:\/\/goldenpi.com\/blog\/essentials\/what-is-corporate-fixed-deposit\/?utm_source=blog&amp;utm_medium=blog&amp;utm_Diversify\"><strong>What is Corporate Fixed Deposit?<\/strong><\/a><span class=\"ez-toc-section-end\"><\/span><\/h4>\n<h2><span class=\"ez-toc-section\" id=\"The_contradiction_of_Buy_and_Hold_strategy_to_the_diversification\"><\/span><b>The contradiction of Buy and Hold strategy to the diversification\u00a0<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">The &#8220;buy and hold&#8221; strategy, which involves investing in one or a few stocks and holding onto them for a long period of time, is often seen as being in contrast to diversification. While the buy-and-hold strategy can be successful in the long term, it also carries a high level of <a href=\"https:\/\/goldenpi.com\/blog\/investment-guide\/how-to-assess-your-risk-tolerance-before-investing\/\">risk<\/a>. For instance, when an investor puts all their eggs in one basket and holds onto a single stock or a few stocks, they are exposed to the risk that the stock(s) will perform poorly or even become worthless.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">On the other hand, diversification helps to spread risk across different asset classes and sectors, reducing the overall risk of an investment. In the event that one asset class or sector performs poorly, the other assets in the portfolio can offset the losses. Additionally, <a href=\"https:\/\/goldenpi.com\/blog\/essentials\/bond-market\/how-can-one-diversify-their-portfolio-with-nbfc-bonds\/\">diversifying a portfolio<\/a> can help to protect against market volatility and unexpected events such as <a href=\"https:\/\/goldenpi.com\/blog\/essentials\/how-is-it-when-the-world-is-in-recession\/\" target=\"_blank\" rel=\"noopener noreferrer\">recessions<\/a>, natural disasters, or company-specific issues like <a href=\"https:\/\/goldenpi.com\/blog\/essentials\/what-to-understand-about-the-term-bankruptcy\/\" target=\"_blank\" rel=\"noopener noreferrer\">bankruptcy<\/a>.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Another aspect to consider is that the buy-and-hold strategy assumes that the market will always go up, which is not true. Markets can go through prolonged periods of decline, and if an investor is heavily invested in one stock or sector, they may be unable to sell and recoup their losses. Diversification allows an investor to weather market downturns and still earn a reasonable <a href=\"https:\/\/goldenpi.com\/blog\/fixed-deposit\/fd-returns-on-1-lakh-for-1-year\/\">return<\/a> over time.<\/span><\/p>\n<h2><span class=\"ez-toc-section\" id=\"The_diversification_models\"><\/span><b>The diversification models<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<h3><span class=\"ez-toc-section\" id=\"1_The_traditional_diversification_model\"><\/span><b>1. The traditional diversification model\u00a0<\/b><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p><span style=\"font-weight: 400;\">It involves investing in a mix of stocks, <a href=\"https:\/\/goldenpi.com\/investment-options\/list-view\" target=\"_blank\" rel=\"noopener noreferrer\">bonds<\/a>, and cash. This approach is based on the idea that different asset classes have different levels of risk and return, and that by investing in a mix of assets, an investor can reduce their overall risk while still earning a reasonable return.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Stocks: Stocks represent ownership in a company and tend to have higher potential returns but also carry more risk. They can be affected by factors such as the overall health of the economy, the performance of the specific industry, and the financial health of the company.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Bonds: <a href=\"https:\/\/en.wikipedia.org\/wiki\/Bond_(finance)\" target=\"_blank\" rel=\"noopener noreferrer\">Bonds<\/a> are debt securities issued by companies or governments. They tend to have lower potential returns than stocks but also carry less risk. They are often considered haven <a href=\"https:\/\/goldenpi.com\/blog\/bond-news\/retire-early-with-bond-investments\/\">investments<\/a> and can provide a steady stream of income in the form of interest payments.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Cash: Cash is considered to be the safest investment as it carries no credit risk and is not subject to fluctuations in value. However, it also has the lowest potential return.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">By investing in a mix of these assets, an investor can reduce their overall risk while still earning a reasonable return. For example, if an investor has a large portion of their portfolio invested in stocks, they may want to invest in bonds and cash as well to reduce the overall risk of their portfolio.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">It&#8217;s important to note that, the allocation of assets in the portfolio will depend on the investor&#8217;s risk tolerance, time horizon, and investment goals. For example, a conservative investor with a short time horizon may want to allocate a larger portion of their portfolio to bonds and cash, while a more aggressive investor with a longer time horizon may want to allocate a larger portion of their portfolio to stocks.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">An example of a traditional diversification model would be investing in a mix of stocks, bonds, and cash in the following proportions:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">50% in stocks, representing a mix of large-cap, mid-cap, and small-cap companies from different sectors<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">30% in bonds, representing a mix of government and <a href=\"https:\/\/goldenpi.com\/investment-options\/list-view\" target=\"_blank\" rel=\"noopener noreferrer\">corporate bonds<\/a> with different maturities and credit ratings<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">20% in cash, held in a savings account or money market fund for liquidity and safety<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">An investor following this traditional diversification model would be spreading their risk across different asset classes, which have different levels of risk and return. The stocks portion of the portfolio would have the potential for higher returns but also carry more risk. The <a href=\"https:\/\/goldenpi.com\/collections\/highly-rated-bonds\">bonds<\/a> portion of the portfolio would have lower potential returns but also carry less risk. And the cash portion of the portfolio would have the lowest potential return but is also considered the safest investment.<\/span><\/p>\n<h3><span class=\"ez-toc-section\" id=\"2_The_modern_portfolio_theory_MPT_diversification_model\"><\/span><b>2. The modern portfolio theory (MPT) diversification model<\/b><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p><span style=\"font-weight: 400;\">The modern portfolio theory (MPT) diversification model is a more advanced approach to diversification that takes into account the correlation between different assets. MPT suggests that an investor can further reduce their risk by investing in assets that have a low correlation with each other.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The central idea of MPT is that diversifying a portfolio across different asset classes and sectors is not enough to <a href=\"https:\/\/goldenpi.com\/blog\/investment-guide\/what-are-the-risks-associated-with-investing-in-nbfc-bonds\/\">manage risk<\/a> effectively. It is also important to consider the relationship between the assets in a portfolio, as some assets may move in the same direction and have similar returns. When assets have a high correlation, it means that they tend to move together, and a downturn in one asset class may cause a downturn in another.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">To build a diversified portfolio according to MPT, an investor should choose assets with low correlation, meaning that when one asset class performs poorly, the other asset classes in the portfolio may perform well, offsetting the losses.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">An example of a modern portfolio theory (MPT) diversification model would be investing in a mix of assets that have a low correlation with each other and lie on the efficient frontier.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">For example, an investor might invest in:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">25% in large-cap stocks<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">25% in foreign stocks<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">20% in real estate investment trusts (REITs)<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">20% in bonds<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">10% in commodities<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">All of these assets have a low correlation with each other, meaning that when one asset class performs poorly, the other asset classes in the portfolio may perform well, offsetting the losses. Additionally, the portfolio is on the efficient frontier, which represents the set of portfolios that offer the highest expected return for a given level of risk or the lowest risk for a given level of expected return.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">In this example, the MPT approach is helping the investor to spread their risk across different assets and sectors that are not perfectly correlated, thus reducing the overall risk of the portfolio, and providing a higher return for the level of risk taken.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">There are many strategies to go about but the above-mentioned are two of the models used to explain the diversification concept.\u00a0<\/span><\/p>\n<h2><span class=\"ez-toc-section\" id=\"To_put_it_simply\"><\/span><b>To put it simply<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">Diversification is an essential tool for any investor looking to build a well-rounded and resilient portfolio. Whether using the traditional diversification model, the modern portfolio theory (MPT) diversification model, or any other strategy for that matter, diversification helps to spread risk, <a href=\"https:\/\/goldenpi.com\/blog\/investment-guide\/strategy\/the-sleep-well-portfolio-strategy-explained\/\">reduces overall risk<\/a>, and can generate better returns over time.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The need for investing comes with attaining financial stability while diversifying the portfolio keeps an investor in a safer hand with their investments at any point in time to reap the return that they anticipate from the market.\u00a0<\/span><\/p>\n<h4 style=\"text-align: center;\"><span class=\"ez-toc-section\" id=\"Its_time_to_break_the_Bank_FD_habit\"><\/span><a href=\"https:\/\/goldenpi.com\/blog\/essentials\/its-time-to-break-the-bank-fd-habit\/?utm_source=blog&amp;utm_medium=blog&amp;utm_Diversify\"><strong>It&#8217;s time to break the Bank FD habit<\/strong><\/a><span class=\"ez-toc-section-end\"><\/span><\/h4>\n<h2><span class=\"ez-toc-section\" id=\"FAQs_on_Diversifying_Investment_Portfolio\"><\/span><b>FAQs on Diversifying Investment Portfolio<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<h3><span class=\"ez-toc-section\" id=\"1_What_is_diversification\"><\/span><b>1. What is diversification?<\/b><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p><span style=\"font-weight: 400;\">It is a technique to tackle risks of investments by investing in various assets to reap safer returns and to keep the portfolio stable when any of the assets is at its low.\u00a0<\/span><\/p>\n<h3><span class=\"ez-toc-section\" id=\"2_What_is_the_significance_of_diversification\"><\/span><b>2. What is the significance of diversification?<\/b><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p><span style=\"font-weight: 400;\">It is important at times to be averse to risk, make informed returns on the investment, and save from the risks of geopolitics.\u00a0<\/span><\/p>\n<h3><span class=\"ez-toc-section\" id=\"3_What_is_the_traditional_diversification_model\"><\/span><b>3. What is the traditional diversification model?<\/b><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p><span style=\"font-weight: 400;\">An approach that conveys investing in a mix of assets that includes <a href=\"https:\/\/goldenpi.com\/blog\/essentials\/bond-market\/stocks-might-be-eye-catchy-bonds-are-relaxing-though\/\">stocks<\/a>, bonds, and cash.<\/span><\/p>\n<h3><span class=\"ez-toc-section\" id=\"4_What_is_Modern_Portfolio_Theory\"><\/span><b>4. What is Modern Portfolio Theory?<\/b><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p><span style=\"font-weight: 400;\">A strategy that incorporates the consideration of the correlation of different assets. The significance of the model is to be invested in assets with lower correlation to reduce the risks.<\/span><\/p>\n<p><script type=\"application\/ld+json\">{\"@context\":\"https:\/\/schema.org\",\"@type\":\"FAQPage\",\"mainEntity\":[{\"@type\":\"Question\",\"name\":\"What is diversification?\",\"acceptedAnswer\":{\"@type\":\"Answer\",\"text\":\"It is a technique to tackle risks of investments by investing in various assets to reap safer returns and to keep the portfolio stable when any of the assets is at its low. \"}},{\"@type\":\"Question\",\"name\":\"What is the significance of diversification?\",\"acceptedAnswer\":{\"@type\":\"Answer\",\"text\":\"It is important at times to be averse to risk, make informed returns on the investment, and save from the risks of geopolitics. \"}},{\"@type\":\"Question\",\"name\":\"What is Modern Portfolio Theory?\",\"acceptedAnswer\":{\"@type\":\"Answer\",\"text\":\"A strategy that incorporates the consideration of the correlation of different assets. The significance of the model is to be invested in assets with lower correlation to reduce the risks.\"}}]}<\/script><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Uncertainty in the market is always a point of consideration for every investor out there in the world. Getting into uncertainty might&hellip;<\/p>\n","protected":false},"author":4,"featured_media":12006,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"no","_lmt_disable":"","footnotes":""},"categories":[151],"tags":[],"class_list":["post-5469","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-financial-matters"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.6 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Diversifying Investment Portfolio: Managing Risk - GoldenPi<\/title>\n<meta name=\"description\" content=\"Learn how to identify the Diversifying Investment Portfolio and manage the risk that will help you reach your goals, no matter what the market does.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/goldenpi.com\/blog\/financial-matters\/diversifying-investment-portfolio-managing-risk\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Diversifying Investment Portfolio: Managing Risk - GoldenPi\" \/>\n<meta property=\"og:description\" content=\"Learn how to identify the Diversifying Investment Portfolio and manage the risk that will help you reach your goals, no matter what the market does.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/goldenpi.com\/blog\/financial-matters\/diversifying-investment-portfolio-managing-risk\/\" \/>\n<meta property=\"og:site_name\" content=\"GoldenPi | Blogs\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/goldenpitech\" \/>\n<meta property=\"article:author\" content=\"goldenpitech\" \/>\n<meta property=\"article:published_time\" content=\"2023-01-21T07:37:33+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2026-04-07T09:20:04+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/d2zny4996dl67j.cloudfront.net\/blogs\/wp-content\/uploads\/2023\/01\/24133717\/Diversifying-Investment-Portfolio-Managing-Risk.png\" \/>\n\t<meta property=\"og:image:width\" content=\"731\" \/>\n\t<meta property=\"og:image:height\" content=\"347\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/png\" \/>\n<meta name=\"author\" content=\"Abhijit Roy, CEO &amp; 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