Investing incurs risks because it is impossible to correctly predict future returns of any investment every time (if you can let me know!). However, what is certain is that not all investments perform the same way under the same market conditions; some zig while others zag. Investors may try to pick one investment asset over the other by non-diversifying, but any wrong pick would result in lower returns or losses. Portfolio diversification reduces investment risk by eliminating such possibilities through investing in assets of different expected returns. The expected return on a diversified portfolio will always lower than the asset with the highest expected return but higher than the asset with the lowest expected return. In other words – it evens out your highs and lows for a more even return.
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