Diversification, with its emphasis on variety, aims to minimise risk by spreading out one’s investment assets across multiple investments and / or investment classes in an effort to reduce the risk associated with any one investment or asset class. If you are investing in the stock market, it may be wise to spread risk by spreading investments across a number of counters. A drop in value in one counter may be offset by gains in another. Thus diversification will leave one less exposed to a single economic event, so if one business or sector you’ve invested in fails or does badly, you won’t lose all your money, as the loss will be diluted by the sector that performs.