Diversification is simply a risk management strategy that includes a vast variety of investments within a portfolio. A diversified portfolio contains a mix of specific asset types and investment vehicles to limit exposure to any single asset. The logic behind this technique is that a portfolio constructed of different kinds of assets will have higher long-term returns and lower the risk of any individual holding. Portfolio holdings can be diversified not only across asset classes but also within classes by investing in foreign markets as well as domestically. The idea is that the positive performance of one area of a portfolio will outweigh the negatives of the other.