Diversification can be one of your most important tools to help you manage investment risk. As you diversify, your goal is to realize the best possible returns for the level of risk you're willing to take.The more narrowly focused your investments are, the greater the potential for a major loss in a period of falling prices or market turmoil.
For example, consider the performance of two hypothetical portfolios created by RiskMetrics, a software analytics company specializing in risk assessment, for The New York Times. One was a diversified portfolio of stocks and bonds of both developed and emerging economies. The other was a concentrated portfolio of 80% U.S. stocks and 20% European stocks.
Don Kittell