Why is diversification considered a recommended investment strategy?

Diversification is recommended as an investment strategy primarily because it helps to reduce risk by spreading investments across various assets. By diversifying a portfolio, an investor can mitigate the impact of a poor-performing asset on their overall investment returns. This is because different asset classes, such as stocks, bonds, and real estate, often respond differently to market conditions.

For example, when stocks are underperforming, bonds might be doing well, balancing out potential losses. This strategy recognizes that while some investments may yield high returns, they also come with high risks, and a diversified approach allows investors to capture gains while minimizing the chance of significant losses concentrated in a single asset.

In contrast to the other options, which suggest focusing on high-risk assets, guaranteeing profits, or concentrating solely on a specific sector like technology, these approaches may expose an investor to higher levels of risk without the protective benefits that diversification provides. By diversifying, investors can take advantage of different market conditions and asset performance, ultimately leading to more stable long-term growth.