Which of the following strategies is important when constructing a portfolio?

A balanced and diversified approach is crucial when constructing a portfolio because it spreads risk across different asset classes and sectors. This strategy helps to mitigate losses during downturns in specific industries or market segments. Diversification ensures that the performance of any single investment has a limited impact on the overall portfolio, allowing for more stable returns over time. A well-rounded portfolio typically includes various asset types, such as stocks, bonds, and possibly real estate, in differing proportions that align with an investor’s risk tolerance and investment goals.

Focusing solely on one type of investment, like real estate or government bonds, can expose the portfolio to heightened risk if that sector underperforms. Similarly, ignoring market conditions can lead to poor investment decisions, resulting in potential losses. Therefore, a balanced and diversified approach is fundamental in managing risk effectively while aiming for growth.