Over 700 finance terms, Shmooped to perfection.
Gravity causes baskets to fall. And when they fall, the stuff in there breaks. So why would you put all of your breakable stuff in just one basket? Diversification mitigates risk - if one stock crashes, you still have a few dozen more that are hanging in. And diversification means more than just having a range of stocks. It can push you to have a range of investment categories - like bonds, real estate, commodities, non-U.S. assets, etc. (A wide range of shoes stored in a closet does not count as diversification.)