Portfolios can be destroyed through a variety of well-known failures. High up on the list is the failure to diversify properly. Diversification is the one free lunch in finance and investment practice, and prudent diversification is a prime responsibility of fiduciaries under common law, UPIA, and ERISA. Diversification first and foremost reduces risk to its lowest possible value. This article will look at how systematically diversifying a portfolio can reduce risk at the portfolio level while maintaining or even enhancing returns. Financial economists define risk in the investment process as the standard deviation around the expected return of the portfolio. It is important to understand that excessive risk usually doesn't work itself out to an average return. Many investors use the S&P 500 as an appropriate benchmark for the entire stock market. Emerging markets offer another opportunity to spread risk. All investors should spend as much effort on the risk side of investment problems as on the return side.