In the context of portfolio management, diversification is a strategy that allows an investor to minimize the risks associated with investing in stocks, bonds, and other securities. Each kind of security carries with it its own set of risks and benefits. Oftentimes, in order to receive high returns, it is also necessary to invest in high-risk securities. Since different kinds of securities move in different directions and at varying rates, investing in a variety of these may help ensure that the investor is protected from losing all his funds, should one security fail to deliver the desired results.

Before deciding on the combination of investments to be made, it is important that the investor sets his objectives. Doing so will allow him or his broker to make appropriate decisions on the combination of securities to invest in, as well as the most logical proportions. An investor must also decide on how much risk he is willing to expose himself to, as well as the time line for the achievement of his goals. By doing so, the investor will be better able to come as close as possible to his investment objectives.

In the context of marketing, on the other hand, diversification involves either the creation of new products or entrance into more varied markets for the purpose of maximizing profit. Furthermore, a company that wishes to diversify may also acquire other companies which offer similar or complementary products or services. Companies may also decide to produce products or acquire companies which offer goods which are not necessarily complementary with those currently being sold. This may be done in order to address the demands of new and strategic markets.