Which investment strategy provides protection against losses?

Diversification is a strategy that involves spreading investments across various assets or asset classes, rather than concentrating them in a single investment. This approach minimizes risk because the performance of different investments can vary, and some may perform well even when others do not. By holding a mix of assets, such as stocks, bonds, and real estate, an investor can reduce the impact of a poor performance from any one investment on the overall portfolio. When one asset class declines, others may remain stable or even increase in value, thereby protecting the investor from significant losses.

In contrast, concentration refers to investing a large percentage of one’s portfolio in a single asset or a few assets, which can lead to higher risk. Gearing, or leveraging, involves borrowing funds to invest, which can magnify both potential gains and losses. Capital appreciation focuses on the increase in the value of an investment, but does not inherently provide protection against losses. Overall, diversification stands out as the most effective strategy for mitigating risk and protecting against losses in an investment portfolio.