Diversification is a risk management technique used in implementing a strategy of mixing your assets within a variety of investments called a portfolio. By not placing your eggs all in one basket or "diversifying," is what many financial advisors consider a relatively safe approach to building your finances. This way if one avenue fails, you're not back to square one – there are other plans where you can fall back.

Savings Accounts - Regular savings accounts are where you should keep funds designated for an emergency. Savings accounts are federally insured through the FDIC with banks and the NCUA with credit unions. These accounts usually draw a small amount of interest. Funds placed in this account are easily accessed should the need arise.

Money Market Deposit Accounts - These accounts pay a slightly higher interest rate than regular savings accounts and generally require a minimum balance requirement. Usually there are annual restrictions on how many withdrawals are allowed without penalty.

Money Market Mutual Funds - These funds are types of mutual funds that are required by law to invest in low-risk securities like government securities and certificates of deposits. Money Market Mutual Funds traditionally are not federally insured like Money Market Deposit Accounts.

Certificate of Deposit (CD) -These deposits earn a higher return rate than savings accounts or money markets; though the terms of the account vary.  The longer the term, the higher the interest rate; however, there are penalties for early withdrawal. Purchasing a CD is like loaning money to the bank or credit union. Certificates of Deposit are considered low-risk and are federally insured.

Stocks - When you purchase a stock, you're buying a share of a company's profit. This type of investment is considered very risky; however, it offers a high rate of return. Be prepared to ride out the up and down storm of the stock market until you decide to sell your shares back to the company.

Bonds - Purchasing a bond in a company, local, state or Federal government, you are loaning money to them. The bond is for a certain time-frame and you are promised a certain rate of return on a particular date. Bonds are considered a lower risk than stocks since bondholders are paid before stockholders if a company folds. You will not earn the rate of inflation should interest rates increase during that time-frame.

Mutual Funds - A combination of funds from many individuals managed by a financial expert. The money is invested by the financial expert in bonds, money markets, securities and stocks. Investing, buying and selling is done at the fund managers discretion. Individual risk is reduced since the money is pooled with other investors.

Annuities - Are complex contracts made with an insurance agency. Deferred annuities focus on aquiring money for retirement, while immediate annuities offer income during retirement. Since annuities are very complex, it's best to get expert financial advice when considering this type of investment.