Conventional wisdom says it’s unwise to put all your eggs in one basket. Likewise, having a large portion of your portfolio in any single asset class — be it stocks, bonds, commodities, or cash equivalents — is financial suicide. Maintaining a well-diversified balanced investment portfolio helps minimize risk by spreading out your investments across multiple classes; think of it as a form of free investor’s insurance that protects you from catastrophic losses.
The bottom line: Diversification is a critically prudent and important financial planning strategy. And although it won’t eliminate losses in a severe downturn, it will reduce the risk of complete annihilation.