NEW YORK ( TheStreet ) -- Thanks to the slew of issues including the debt crisis in Europe and China's steps to cool its overheating economy, many investors are having doubts that the U.S. and the rest of the global economy can stick to the road to recovery. With the resounding fear emanating from all corners of the globe, it is no wonder that the investing world has become a volatile and tricky frontier.Because of the various risk factors at play, I have long touted that the best approach to weathering the current and future economic storms is to properly diversify your portfolio. The theory behind diversification is that by spreading assets across a broad spectrum of holdings, investors can avoid taking a hit in the event that any particular position takes a nosedive. A strong portfolio boasts exposure to a diverse selection of domestic and international equities as well as defensive plays like bonds and gold. Thanks to the advent of exchange-traded funds this process of spreading risk into various slices of the market has become simpler than ever. Rather than picking individual stocks and bonds, do-it-yourself investors can purchase large, liquid, equity-based ETFs like SPDR S&P 500 ETF ( SPY) and iShares MSCI Emerging Market Index Fund ( EEM) and instantly gain access to more than 1,100 strong, stable companies from around the world. > > Bull or Bear? Vote in Our Poll By combining these positions with exposure to defensive funds such as SPDR Gold Shares ( GLD) and iShares Barclays TIP Bond Fund ( TIP), investors can construct a simple portfolio that successfully taps into the upside potential of the broad domestic and global markets while, at the same time, protecting against economic turmoil in the future. Although the use of diversification has remained an essential element to the various portfolios I construct to protect and build wealth for my subscribers and money management clients, not everyone in the investing world shares the same views regarding this technique. Opponents of diversification point to the fact that, by spreading assets across the vast market spectrum, investors risk losing out on returns. One prominent individual who has mixed feelings on effectiveness of diversification is Warren Buffett. Within his massive collection of aphorisms, the Oracle of Omaha has offered up his own wisdom on the topic of diversification: "Diversification is a protection against ignorance. It makes very little sense for those who know what they are doing."
In a sense, it is easy to understand Buffett's reasoning behind this statement. As I explained previously, diversification is needed in order to protect your assets against weak points in the overall market. Therefore, if an investor has the capability to weed out weak elements of the market and predict where strength will ensue, spreading risk would be unnecessary. Instead, he or she could simply put all of their money into the strongest position and watch his or her wealth grow. Unfortunately, for many, performing the time-consuming task of weighing the pros and cons of every available option is nearly impossible. This is especially true today given the overwhelming amount of information and opinions investors are bombarded with from Internet sources as well as the media's talking heads. Even Warren Buffett, who is often highlighted for the extensive research he puts into companies before investing in them, appears to realize he can not cover everything. A quick look at the Berkshire Hathaway's ( BRK.A) stock holdings will show that the investor's assets are diversified across numerous holdings and sectors. Nearly 40 different company names comprise the legendary portfolio hailing from various slices of the market including financials, industrials, energy and consumer staples. Given the uncertainty and risks inherent in today's investing world, putting all your eggs in one basket can prove devastating. Diversification has become more important than ever. What are your feelings on diversification in a portfolio? Feel free to leave a comment below. At the time of publication, Dion Money Management owned TIP.