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Diversification is a key investing concept many financial advisers preach to investors as a way to reduce their risk exposures. Many people interpret this advice to suggest that they should invest in several different stocks across different sectors and industries. This is interpretation is partly correct. However, one area many people tend to overlook is diversifying across different countries.

Perhaps accentuated by the financial crisis that originated in the U.S., there has been a growing trend for investors to diversify away from the domestic securities. This is evidenced by the slide in U.S. dollar foreign reserve holdings over the last decade. Diversification may not give you all the protection you want, but diversifying across countries as well as sectors does provide some safety in the event of negative market developments. In addition, investing in large-cap stocks that also pay a dividend will further spread out the risk of all your assets being affected by a single event.

Source: Investopedia

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