One effective way to mitigate risks is to use a strategy known as asset allocation. This involves dividing your investments among different asset categories, such as stocks, bonds, and cash, based on your risk tolerance and investment goals. For example, if you have $10,000 to invest and you decide on a conservative allocation of 50% in bonds, 30% in stocks, and 20% in cash, you would invest $5,000 in bonds, $3,000 in stocks, and $2,000 in cash. This way, if one asset category performs poorly, the other investments may help cushion the impact on your overall portfolio.

Asset allocation is the strategy of spreading your investments across various asset classes to balance risk and reward according to your individual risk tolerance and investment time horizon. By diversifying across different types of investments, you can potentially reduce the impact of a poor-performing asset on your overall portfolio, leading to more stable returns over time.