When Michael Dell of Dell Computers was in his thirties and on top the list of richest people under 40 it was said that his investment portfolio was so diversified that if Dell Computers went bankrupt, he still would have topped the list. That's called diversification and it's the key to taking away some of the volatility that your investments will inherently have. It simply means that you will put your money into multiple investment vehicles, so that if some of them are down, others will likely be up.

What this does is lessens the chance that you will get blindsided by having all of your investments in the same sort of stock, or the same type of real estate. You can even diversify further by investing in different global markets. If the American market is down, perhaps the Japanese or Korean market is doing fine.

Mutual funds are a great way to instantly diversify your assets. They are by their very nature diversified. It entails putting your money into a portfolio of different stocks and bonds that are designed to steadily grow over time. These mutual funds usually have a fund manager that will be responsible for creating and maintaining the stocks that are in the fund. You will group your money with everyone else's that invests into the fund. Likewise, you will all share in the profit and loss from that fund.

You can benefit from diversifying your portfolio in two ways. First, it lessens how volatile your entire portfolio is. If your portfolio involves stock from Google, Yahoo, and Microsoft, and hackers shut down the Internet for a month, your investment will probably be wiped out. If you had diversified your assets by putting some money into a gas company, or another utility, you'd probably still have something left at the end of the crisis. Second, it lets you get a higher ROI for a given level of risk. If you go with stocks instead of bonds, you are taking on a higher amount of risk. If you diversify your stocks you will bring down some of the risk, making it similar to bonds, but keeping the chance of a higher return from the stocks.

Don't believe anyone that tells you that they have a guaranteed investment. No matter where they work, what they have under their belt as far as experience or credentials, no matter how much research they've conducted or what formula they've devised, there is no way to cut out all the risk of losing money. By diversifying you are hedging your investment, but you are not eliminating risk all together. Because you can't predict the future you are trying to make your investment safer by diversifying.