What Is Diversification and Why It Protects Your Portfolio

By Allen Krewzz

Published June 29, 2026Updated July 4, 2026

What Is Diversification?

Why Diversification Reduces Risk

Diversification doesn't eliminate risk entirely — a broad market downturn can pull most things down at once — but it strongly protects you from the failure of any single company or sector.

How to Diversify a Portfolio

Across companies

Across sectors

Across asset types

Across geographies

The Easiest Way to Diversify

The Limits of Diversification

A Simple Example

Conclusion