Get all cash out of the bank

[TheHeathens]

The Oxford English dictionary defines a hedge fund as:an offshore investment fund that engages in speculation using credit or borrowed capital.

It also defines the term speculate: form a theory or conjecture without firm evidence.

In other words gambling.

That's all well and good, but who mentioned Hedge fund??? Stop doing that spin thing!

Definition of hedge (other than the botanic variety):

"an act or means of preventing complete loss of an investment, or the like, with a partially counterbalancing or qualifying one."

Gambling:

"to stake or risk money, or anything of value, on the outcome of something involving chance: to gamble on a toss of the dice."

As investment doesn't involve chance (it involves risk), it's not gambling by definition.

In diversification, you select the areas you think are going to do well and spread the investment. The areas you don't think are going to do well, you don't invest in (we don't invest in Property or Japan).

You may not get the highest returns of the single highest area, but you are taking much less risk as diversification lowers risk (proven - research it)

There is a direct correlation between risk and return and the trick is finding the balance commensurate with your risk profile.

If you had someone with a risk profile of 4, you wouldn't stick them all in stocks and shares due to the risk, so you would diversify across fixed interest investment (which have lower volatility) and shares (higher volatility). This would limit the potential returns, but that's what you sacrifice to keep the investments in line with your risk profile. It would of course, limit the potential losses.