Portfolio diversification is an investment strategy that involves spreading investments across various assets to reduce risk. By holding a mix of different types of investments, such as stocks, bonds, and real estate, investors can protect themselves from significant losses. If one asset performs poorly, others may perform well, balancing the overall performance of the portfolio. The main goal of diversification is to minimize the impact of market volatility on an investor's overall returns. This approach is based on the principle that not all investments will react the same way to economic events. Therefore, a well-diversified portfolio can lead to more stable returns over time.