Which approach involves spreading out investments to reduce risk?

The correct answer is diversification. This approach is key in investment strategy, as it involves allocating resources across a variety of assets rather than concentrating them in a single investment. By spreading out investments, an individual can mitigate the impact of poor performance from any single asset. This can help to stabilize returns, as different assets often perform differently under varying market conditions.

Diversification works on the principle that a well-rounded investment portfolio can reduce risk without necessarily compromising potential returns. For example, if one sector experiences a downturn, others may thrive, balancing overall portfolio performance. This method is crucial for investors looking to manage risk effectively while still seeking growth opportunities. Overall, diversification is an essential strategy in finance aimed at enhancing the overall stability of investment outcomes.