How can investment risk be minimized?

Minimizing investment risk is best achieved through a well-diversified portfolio. Diversification involves spreading investments across various financial instruments, industries, and other categories to reduce exposure to any single asset or risk. By not putting all funds into one type of investment, you can mitigate the impact of any poor performance by one asset or market segment on your overall portfolio. When one investment declines, others may remain stable or even appreciate, thus balancing potential losses.

Understanding market trends is indeed important, but it does not directly reduce risk on its own. It can provide insights that inform better investment decisions, yet without diversification, those decisions could still lead to concentrated risks. Focusing solely on high returns can lead to taking greater risks, which may not minimize investment risk but rather increase it. Lastly, investing in one asset class only can expose an investor to significant risks tied to that specific class, which further emphasizes the importance of diversification to achieve a more stable investment performance over time.