Etymology:
Meaning:
Diversification is the process of diversifying or making diverse. It refers to the act of spreading out an investment portfolio over different asset classes, industries, or geographic regions to reduce risk. By diversifying, investors aim to reduce the impact of negative performance in any one asset or sector on the overall portfolio.
Origin:
The concept of diversification has been around for centuries, but the term "diversification" first emerged in the field of finance in the early 1900s. It gained prominence among investors in the 1950s and 1960s as modern portfolio theory (MPT) emphasized the importance of diversification in reducing risk. MPT, developed by Harry Markowitz, proposed that investors can reduce portfolio risk by combining assets with different risk and return characteristics.
Over the years, diversification has become a fundamental principle of prudent investment management. It is widely recognized that diversification is an effective way to manage investment risk and enhance returns over the long term.
Etymology Latin divertere to turn aside disperse Old French diversifier Middle
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