Investors can reduce risk by spreading their money across different investments, a concept known as diversification. This idea was mathematically formalized by Markowitz in 1952. Instead of focusing on the risk of individual investments, it's more important to consider how each investment affects the overall risk of the portfolio. This approach allows for risk reduction without sacrificing potential returns. The period from 1950 to 1980, known as the classical period in financial economics, saw the development of key concepts like the law of large numbers, the market model, and strategies for long-term investment.