What is the meaning of diversification in investment?

Diversification in investment refers to the strategy of spreading investments across different asset classes, industries, or geographical regions to reduce risk. The goal is to minimize the impact of any single investment’s poor performance on the overall portfolio. By holding a mix of assets, such as stocks, bonds, real estate, and commodities, investors can balance risk and return more effectively. Diversification reduces the likelihood of significant losses during periods of market volatility, as different assets may respond differently to economic events. It is considered a key principle of long-term investment strategy.