Final answer:
The spreading of risk among many types of investment is known as diversification, a strategy that can help mitigate individual investment risks and smooth out portfolio volatility by investing in a variety of assets, like stocks, bonds, and mutual funds.
Step-by-step explanation:
The spreading of risk among many types of investment is called diversification. This concept is particularly important in the realm of finance and investing. By investing in a mix of assets, such as stocks, bonds, and mutual funds, investors can mitigate the risks associated with putting all their funds into a single investment. Diversification can smooth out the volatility in a portfolio, as the performance of different investments may balance each other out.
This strategy aligns with the old adage 'Don't put all your eggs in one basket'. It is a key technique to protect your investment portfolio from the idiosyncratic risks of individual stocks or the market's fluctuations. Mutual funds are a common way for investors to achieve diversification, as these funds pool money from many investors to buy a wide range of securities.
History shows that high levels of risk in an investment portfolio without adequate diversification can lead to significant losses, as seen during the 2008 financial crisis. Speculation, or investing based on the hope for quick returns due to market fluctuations, can also introduce high risk. Diversification can help to safeguard against such sharp declines.