Which strategy best minimizes investment risk?

Diversifying across various investments is the strategy that best minimizes investment risk. This approach involves spreading investments across a wide range of asset classes, including different sectors, geographies, and investment vehicles. By doing so, an investor mitigates the impact of poor performance in any single investment, as losses in one area can potentially be offset by gains in another. This reduces the overall volatility of the portfolio and helps in achieving more stable returns over time.

In contrast, concentrating investments in a few high-performing stocks, focusing on a single industry, or limiting investments to domestic markets can expose an investor to greater risks. High-performing stocks may not sustain their performance, and concentrating on a specific industry exposes an investment to sector-specific downturns. Similarly, limiting investments to domestic markets may restrict growth potential and increase vulnerability to local economic fluctuations. Diversification helps to create a more balanced and resilient investment strategy.