Diversification to Control Risk

Diversification of investments is just another area that the behavioural finance stream looks into. Loss aversion makes many investors so averse to risk that they will only accept low-yielding “safe” investments that don’t have a prayer of growing enough to last an actuarial lifetime. But the other extreme makes you overconfident and invest too aggressively. What behavioural finance offers is the middle ground: you diversify your risk across all the different types of investments-from stocks to bonds to real estate, and so on.
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