When an investor diversifies his/ her investment what is he/ she doing?

lowering his/her risks to market volatility.

idk

buying both low and high yields

Buys a variety of different stocks from different companies or at least different kinds from one company. So if one goes in the trash you don't lose everything.

When an investor diversifies they are spreading (decreasing) their risk. Not putting all their eggs in one basket, so to speak. Investors should diversify into different investment classes, such as stocks in different sectors, bonds, real estate, CDs and money markets, etc.

Basically he / she is spreading the money they're investing in several different investments.

If you pile the money into just one investment, you risk loosing the bloody lot if it goes ****-up.

If you spread the money over more than one investment, then if one goes down the pan, you've still got a chance with the others.

Imagine an investor has shares of Coca-Cola, Pepsi and Cadbury Schweppes.

If Sugar goes up all three investments will go down.

Imagine an investor has shares of General Motors, Ford and Toyota.

If Steel goes up all three investments will go down.

When your portfolio is too concentrated on the same industry you are taking more risk and this means you could lose a lot of money.

On the other hand if you hold

Pepsi, General Motoros and IBM your risk is a lot less.

When you are buying or selling your investments to reduce risk you are diversifying.

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