There are three main practices that can help you ensure the best diversification:
1. Spread your portfolio among multiple investment vehicles such as cash, stocks, bonds, mutual funds and perhaps even some real estate.
2. Vary the risk in your securities. You’re not restricted to choosing only blue chip stocks. In fact, it would be wise to pick investments with varied risk levels; this will ensure that large losses are offset by other areas.
3. Vary your securities by industry. This will minimize the impact of industry-specific risks.