What does it mean to "diversify" investments?

To "diversify" investments means to spread your investments across various asset classes, such as stocks, bonds, real estate, and commodities. This strategy is designed to reduce risk by ensuring that not all investments respond the same way to market changes. By holding a mix of asset types, an investor can potentially mitigate losses in one area with gains in another. Diversification is a fundamental principle of investing, as it helps create a balanced portfolio that can withstand market volatility and provide more stable returns over time. This approach is often recommended to achieve long-term financial goals while managing risk effectively.