I have a simple approach to diversification: I buy a specific dollar amount of any new stock I acquire. After that point, I can opportunistically add (usually in steps) to my position but only to a point where my dollar investment is twice my entry level.

I've done just that with Hormel Foods (NYSE: HRL) and Realty Income (NYSE: O), so I'm at my max investment. But if I weren't maxed out, I would still be adding more money to each of these reliable dividend stocks. Here's why.

Having a diversified portfolio is a very important risk management tool. It stops you from putting all of your eggs in one basket and then dropping that basket. My approach is ultra simple -- when I invest in a company, I buy a specific dollar amount of shares.

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Source Fool.com