Diversification means spreading your money across different types of investments to reduce risk. For example, if you invest $10,000, you might put $5,000 in stocks, $3,000 in bonds, and $2,000 in real estate. This way, if one investment doesn't do well, the others can help protect your overall money.

Diversification is like having a big box of crayons with lots of different colors. If one color breaks, you still have many others to use. In investing, if one type of investment loses money, you still have other investments that might be doing well, so you're less likely to lose all of your money.