Portfolio diversification is an investment strategy where funds are spread across different types of assets or sectors to reduce risk. With diversification, losses incurred on one asset can be offset by gains from other assets. This strategy aims to create a portfolio that is more stable and resistant to market fluctuations.

For example, an investor who diversifies his portfolio may have a combination of assets such as stocks, bonds, property, and cryptocurrencies. If one of the assets declines in value, the impact can be minimized as the other assets continue to generate profits.