What does diversification mean?
Diversification is the process of making something more varied by introducing different kinds of elements, activities, or assets. It appears most often in economics and finance: for a company, diversification means broadening its range of products, services, or markets so that it does not depend on a single source of income; for an investor, it means distributing money across different asset classes — such as shares, bonds, and property — to limit exposure to any single failure. The word also applies beyond commerce, as when farmers pursue crop diversification or governments promote economic diversification to reduce reliance on one industry. Its connotations are almost entirely positive: diversification suggests foresight, resilience, and prudent management, standing opposed to concentration, uniformity, and over-specialization. Derived from the Latin diversus, meaning 'turned different ways', the word entered English through Late Latin and Old French and remains a cornerstone term wherever risk and variety are discussed.
nounThe action or process of making something more varied, especially by adding different types of products, investments, activities, or elements; in finance, the practice of spreading investments across a range of assets to reduce risk.
- The act or process of making something more diverse or varied.
- In business and economics, expanding a company's range of products, services, or markets to reduce dependence on any single one.
- In finance and investing, spreading capital across multiple asset classes, sectors, or securities to reduce overall risk.
"The company's diversification into renewable energy helped it survive the downturn in its traditional markets."
"Economic diversification has been central to the government's plan to reduce reliance on oil exports."
"Careful diversification across stocks, bonds, and real estate protected her savings during the market crash."
Rarely used; diversification is normally treated as uncountable.
"The report catalogued the company's several diversifications over the past decade."
Farmers have practiced diversification for millennia by planting many crops — but Wall Street only formalized the idea as 'don't put all your eggs in one basket' in modern portfolio theory.
Reviewed by Deb Chak, Editor. AI-assisted content curated by RJS Tech Solutions LLP.
Etymology of diversification
Diversification derives from Latin diversus, the past participle of divertere, meaning 'to turn in different ways', formed from dis- ('apart') plus vertere ('to turn'). The word passed into English via Late Latin diversificare and Old French, with the verb diversify attested from around the 15th century and the noun diversification emerging later, becoming prominent during the industrial and financial developments of the 19th and 20th centuries. Cognates include diversity, diverse, adversity (from advertere), and verse (from vertere).
Related word forms
How diversification is actually used
A formal, largely abstract noun typical of economic, financial, agricultural, and academic writing. It carries a strongly positive connotation — implying prudence, resilience, and reduced risk — in contrast with 'specialization' or 'monoculture', which can suggest vulnerability.
Easily confused with diversification
Diversification means increasing variety, while diversion is an act of turning something aside from its course or a distraction.