What does diversification in investing help to achieve?

Diversification in investing is a strategy that involves spreading investments across various financial instruments, industries, and other categories to reduce overall risk. When an investor diversifies their portfolio, they are not putting all their eggs in one basket; instead, they are allocating funds to a range of assets. This approach helps to mitigate the impact of any single investment's poor performance on the overall portfolio.

By investing in a variety of assets, the negative performance of one or a few investments can potentially be offset by the positive performance of others. This reduction of risk is particularly important in unpredictable markets where different investments can react differently to economic events or market fluctuations. Ultimately, diversification aims to create a more stable investment experience with potentially lower volatility, which is essential for long-term financial planning and security.