Diversification is the investing practice of spreading money across different assets to reduce concentration risk.
A diversified portfolio may hold shares from different companies, industries, countries, or asset classes such as bonds and cash. The aim is not to guarantee a profit but to reduce the damage that one investment or one economic event can cause to the entire portfolio.
Diversification works best when holdings do not move in exactly the same way. Correlation is therefore important: two different companies exposed to the same industry shock may provide less diversification than their names alone suggest.
Diversification is often confused with simply owning many securities. A portfolio can contain dozens of holdings yet remain concentrated in one sector, country, or market theme. It also cannot eliminate broad-market risk, such as a worldwide recession. Mutual funds and ETFs can make diversification easier, but their actual breadth depends on what they hold.