Final answer:
Portfolio diversification is a strategy used in investing to spread investments across a range of assets to reduce risk and maximize earning potential.
Step-by-step explanation:
Diversification is a strategy used in investing to spread investments across a wide range of assets, such as stocks, bonds, and mutual funds. Its main purpose is to reduce the level of risk by not relying on a single investment vehicle. By diversifying a portfolio, an investor can maximize their earning potential while also protecting against significant declines in any one investment.
For example, instead of investing all the money in one company's stock, a diversified portfolio would include investments in different companies from various industries. This way, if one company performs poorly, the impact on the overall portfolio is reduced because other investments may continue to perform well.