"Don't put all your eggs in one basket." You've heard the saying before, but what does it mean? In the case of your portfolio, it means not to rely too heavily on just one type of asset. Diversification is critical for the protection and health of your portfolio.
What is a well-diversified portfolio?
A well-diversified portfolio ideally comprises assets whose returns move in opposite directions—a phenomenon also called inverse correlation. When two assets in the same portfolio are inversely correlated, you have achieved effective diversification—and that should be your goal when you diversify your portfolio.
How do I achieve optimal diversification?
One asset that may offer diversification is gold. As an asset that is isolated from the dollar, the precious metal may provide adequate diversification in an event of financial uncertainty. Gold is also inversely correlated with the dollar, meaning when the value of the dollar goes down, the value of gold tends to rise. What better way to protect your wealth than to achieve optimal diversification by investing in gold, which has historically countered the risks and threats to your long-term investing goals?