Diversifying investment
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Diversifying investment is a style of investing where you don't put "all eggs in one basket" in order to minimize the risk of an unexpected result.
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[edit] Horizontal Diversification
Horizontal diversification is when you diversify between same-type investments. It can be a broad diversification (like investing in several NASDAQ companies) or more narrowed (investing in several stocks of the same branch or sector).
[edit] Vertical Diversification
Vertical Diversification is investing between different types of investment. Again, it can be a very broad diversification, like diversifying between bonds and stocks, or a more narrowed diversification, like diversifying between stocks of different branches.
While horizontal diversification lessens the risk of just investing all-in-one, a vertical diversification goes far beyond that and insures you against market and/or economical changes. Furthermore, the broader the diversification the lesser the risk.
[edit] Return Expectations while Diversifying
The average of all investment-parts will always be below the return of the top-performer-part. In some way, it's the price you have to pay for the insurance. However, strategies do exist that allow you to maximize the return by keeping the risk as low as possible. For example, by giving different portfolio weight to investments based on their risk and return expectations.
