Among the most important tools available to investors is diversification. Diversification allows an investor to reduce investment risks while potentially improving investment returns. But even though the benefits of diversification have been well documented and widely explained by some 60 years of academic research, the concept is, at first glance, counterintuitive.
After all, why in the world would we want to invest in a mix of investments where some do well and others perform poorly? Why not only invest in the "good" investments?
It's an excellent question, but there is also a simple answer. The reason that investing only in the "good" investments won't work comes down to one simple fact: We don't know the future. If we did know the future, concentrating your investments in one or two ideas would make sense.