Diversification

Diversification is a risk management strategy whose core principle is captured by the well-known saying, "don't put all your eggs in one basket." The goal is to spread investments, activities, or resources across multiple different, ideally independent, areas to minimize the negative impact of a potential failure in any single one. If one part of a portfolio or business performs poorly, the losses can be offset by gains from the other parts.

Although the term is most commonly associated with investing (dividing a portfolio among various stocks, bonds, commodities, and regions), it is also applied in business. An example is a company that manufactures multiple product lines or operates in several foreign markets. If demand for one product falls or a crisis occurs in one market, revenue from the other segments helps the company maintain stability. Diversification is, therefore, a key tool for reducing risk and increasing overall resilience.