Final answer:
Diversifying common stocks can be done by spreading investments across industries and countries.
Step-by-step explanation:
Diversification is a strategy that investors use to reduce risk by spreading their investments across different assets. When it comes to diversifying common stocks, there are two ways to do it: across industries and countries.
Across industries: Investing in stocks from different industries helps to reduce the impact of sector-specific risks. For example, if you only invest in the technology industry and there's a downturn in that sector, your entire portfolio may suffer. However, by diversifying across industries, you can minimize this risk as different industries perform differently at different times.
Across countries: Investing in stocks from different countries helps to reduce the impact of country-specific risks. Political instability, economic downturns, and regulatory changes can significantly affect the performance of stocks in a particular country. By diversifying across countries, you can mitigate these risks and take advantage of opportunities in different regions.