There are many types of risk: market risk, business risk, financial risk, interest rate risk, reinvestment risk, and unsystematic risk. Some can be eliminated, some can be reduced, and some have to be tolerated. Companies and investors seek to reduce risk and eliminate risk, so when they have to tolerate risk they can be aware of the risks and monitor them.

You should not only be aware of risk but know how to mute its effects. This discussion allows you to identify risks and see what can be done to mute them.

Diversification is a known portfolio risk reduction technique. Some big investors use this technique and some do not believe in diversification.

For this discussion, suppose you are a financial advisor who desires to reduce portfolio risk for your client. Prepare a brief memo to your client that advises him or her on the action you believe would reduce the risk; in other words, should your client diversify or not diversify?

In your memo, indicate the option you want your client to take, and then explain why this option is the best one. Make sure you support your reasons with examples, readings, and other relevant information.