Diversification is a fundamental principle in investing that involves spreading your money across a variety of assets to reduce overall risk. Instead of putting all your funds into a single stock, sector, or asset class, diversification means investing in a mix of assets — such as stocks, bonds, real estate, and international markets. The idea is that different assets will respond differently to the same economic events. When one investment underperforms, another may outperform, helping to balance potential losses. Diversification can occur not only across asset classes, but also within them — for example, holding multiple stocks from different industries. This strategy lowers the chance that a single event will severely damage your portfolio. While diversification doesn’t guarantee gains or fully eliminate risk, it is one of the most effective tools for managing uncertainty in both long-term and short-term investing. It is widely recommended by financial advisors, institutions, and investment professionals for responsible wealth building.