Diversification is an investment strategy that involves spreading investments across various asset classes, sectors, and geographic regions to reduce risk and enhance potential returns. The primary goal of diversification is to mitigate the impact of poor performance in any single investment by ensuring that the overall portfolio remains balanced and resilient.

By investing in a diverse range of assets, such as stocks, bonds, real estate, and commodities, investors can protect their portfolios from the volatility of individual markets. For example, when one asset class underperforms, another may perform well, helping to offset losses and stabilize returns.Diversification also allows investors to capitalize on different economic cycles and market conditions, improving the potential for long-term growth. It encourages a disciplined approach to investing, focusing on a broad market perspective rather than trying to time individual stocks or sectors.While diversification does not eliminate risk entirely, it is a fundamental principle of modern portfolio theory and a cornerstone of prudent investing. By maintaining a well-diversified portfolio, investors can achieve a balanced risk-return profile and work towards their financial goals with greater confidence.