Diversification means creating an investment portfolio that contains different types of investments within each of the major asset classes — stocks, bonds, and cash. A diversified portfolio might include stock in several different companies or a number of stock mutual funds, government and corporate bonds, and U.S. Treasury bills.
You might diversify a larger portfolio even further by including a range of investments from other asset classes, such as real estate or options.
When you diversify, you choose between different subclasses of investments within each asset class. Each subclass is similar to other investments in its class, but also has some distinctive characteristics. For example, the stocks of large and small companies are both equity investments. But the two tend to increase in value at different rates and expose you to different levels of investment risk.
Finally, each subclass is made up of hundreds, and sometimes thousands, of separate investments for you to choose among. For example, the stocks of the five hundred companies included in Standard & Poor's 500-stock Index are usually all considered part of the subclass of large-company stocks.
In some ways, it's easier to understand diversification by explaining what it is not:
If the only stock you own is stock in your employer's company, your portfolio isn't diversified
When you diversify, you choose between different 
Don Kittell
