What is the term for spreading assets across various types of investments to manage risk?

The term that best describes spreading assets across various types of investments to manage risk is diversification. This strategy involves investing in a mix of asset classes—such as stocks, bonds, and real estate—to reduce the impact of poor performance from any single investment. By having a diversified portfolio, an investor can mitigate risk, as different investments may perform differently under varying market conditions. The goal is to achieve a balance that can help safeguard against significant losses while still allowing for growth potential.

In contrast, hedging involves using financial instruments to offset potential losses in an investment, which is a different approach aimed at risk management. Asset allocation refers to the process of deciding how to distribute an investor's capital among different asset categories, whereas consolidation typically refers to combining assets or accounts rather than spreading them out.