A principle of investment management that calls for spreading investments across a number of different assets, securities, and industries. Diversi-fication is important because it reduces the investorÂ’s risk because each asset class is likely to have different risks. Diversification also can occur within asset classes, such as buying equities of both small companies and large companies, which typically move in different cyclical patterns. Companies may also diversify by selling different products or by entering different industries.