Portfolio Construction and Diversification

Portfolio construction is the process of selecting a mix of investments, such as stocks, bonds, and real estate, to achieve specific financial goals while balancing risk and reward. Diversification involves spreading investments across different assets to reduce risk; the idea is that if one investment loses value, others may perform better, helping to stabilize overall returns. By combining various asset types, investors can lower the chances of significant losses and enhance the potential for gains, aligning their portfolio with their risk tolerance and investment objectives.