Diversify

Diversify is a verb meaning to make something more varied or to spread it across different categories. Diversification refers to the resulting process or state. The term originates in Latin diversus, meaning turned in different directions, and entered English through French and Middle English.

In finance and investing, diversification reduces portfolio risk by allocating capital among assets with different return patterns. The goal is to avoid excessive exposure to any single asset or market. Common approaches include combining stocks, bonds, real estate, and alternative investments across sectors and geographies, and rebalancing periodically to maintain target allocations. The concept is a core principle of modern portfolio theory: expected risk-adjusted returns improve when asset price movements are not perfectly correlated.

In business, diversification means expanding product lines, customer bases, or markets to reduce dependence on a single revenue source. This can take vertical diversification (adding supply chain steps) or horizontal diversification (new related lines) and may involve mergers or partnerships. In agriculture and ecosystems, diversification involves growing multiple crops, rotating crops, or maintaining genetic diversity to increase resilience to pests, climate variation, and disease. In culture, organizations diversify content, staff, and funding sources to reach broader audiences and reduce risk of revenue concentration.

Limitations: diversification reduces risk but does not guarantee against loss, and over-diversification may reduce focus or increase costs. In practice, the optimal degree of diversification depends on goals, resources, and exposure to correlated risks.