Diversification blends a broad spread of investments within your portfolio. A portfolio comprised of different kinds of investments tends to, on average, yield better returns and represent a lower risk than that of any individual investment found within it.

The adage "Don't put all your eggs in one basket" underpins the concept of diversification. A well-diversified portfolio is one in which securities from a broad selection of different asset classes, aim to provide the growth potential and risk mitigation that characterizes their behavior during the same economic trends.

Essentially this means that when one type of security performs poorly, another type is likely to perform well. Thus, all things being equal, together in a portfolio, the volatility is reduced without sacrificing favorable returns. Having many different types of securities within your portfolio serves to limit your risk whilst setting you on the road toward achieving your investment objectives.