When most investors think about diversification, they probably imagine some combination of stocks and bonds. For decades, financial advisors have recommended that you keep a certain percentage of your portfolio in each. This ratio is often used as a proxy for diversification, but it’s just one of many ways you can diversify your investments to improve performance and reduce risk.

The Investors Centre diversification requires spreading your assets across several asset categories, such as stocks, bonds, real estate funds, international securities and cash equivalents. Each of these types of investments does something different for your portfolio. For example, real estate provides a hedge against inflation and tends to have low “correlation” to stocks (in other words, they usually rise when stocks fall). And cash offers safety and liquidity.

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Investing in multiple investment classes can also help spread out the potential losses from specific circumstances, such as an oil price decline or a sudden drop in demand for your products or services. That’s why a smart diversification strategy may include a mix of stocks by market capitalization (small, mid and large caps), sectors, and geography. And for your bond holdings, you should consider varying maturities and credit qualities as well as taking into account the effect of interest rate fluctuations.

Alternative asset classes can provide further opportunities to diversify your portfolio, including precious metals, investment property, or even collectibles such as fine wines and baseball cards. They typically have lower correlations with stocks and bonds, but they are generally more volatile than traditional securities.