Diversifying your investment portfolio means spreading your investments across different asset types, such as stocks, bonds, and real estate, to reduce risk. This strategy helps protect your portfolio from market volatility, as not all asset classes react the same way to economic events.

By holding a variety of assets, you reduce the likelihood that a single event will significantly impact your overall financial health. Diversification is a key principle in risk management and is particularly useful for long-term investors looking to balance potential returns with safety.