diversify

verb
di·​ver·​si·​fy | \ də-ˈvər-sə-ˌfī How to pronounce diversify (audio) , dī-\
diversified; diversifying

Definition of diversify

transitive verb

1 : to make diverse or composed of unlike elements : give variety to diversify a course of study
2 : to balance (an investment portfolio) defensively by dividing funds among securities (see security sense 3) of different industries or of different classes diversify your investments
3 : to increase the variety of the products of diversify the company

intransitive verb

1 : to produce variety encouraging farmers to diversify
2 : to engage in varied operations diversifying into online services

Keep scrolling for more

Other Words from diversify

diversifier \ də-​ˈvər-​sə-​ˌfī(-​ə)r How to pronounce diversifier (audio) , dī-​ \ noun

Examples of diversify in a Sentence

The country is diversifying its energy sources. farmers who want to diversify their crops The new CEO's chief aim is to diversify the company. The company needs to diversify. Many publishing companies have diversified into online services.
See More

Recent Examples on the Web

Mid Penn Bancorp, a Russell 3000 company, is among the companies diversifying. Kristin Broughton, WSJ, "Small Companies Face Added Pressure to Put Women on Boards," 13 Feb. 2019 Anastasiades said Cyprus and Israel share a joint commitment to the East Med project that would diversify Europe’s hydrocarbons supply and bolster its energy security. Menelaos Hadjicostis, The Seattle Times, "Israel: ‘Much safer’ Mediterranean with Cyprus teamwork," 12 Feb. 2019 Galloway explained that part of Nadella’s success is diversifying Microsoft’s business into enough verticals that the company hasn’t been as impacted by tech stocks’ recent decline. Eric Johnson, Recode, "Microsoft is more valuable than Apple again. Why?," 30 Nov. 2018 The video-streaming venture is fraught with risk for a company scrambling to diversify beyond its star product, the iPhone, whose sales have started to decline . Tali Arbel, The Seattle Times, "Apple belatedly jumps into the streaming TV business," 25 Mar. 2019 Funds are a relatively cheap way to diversify your investments. Ellen Sheng, Marie Claire, "A Beginner's Guide to Investing," 2 Jan. 2019 Since its founding, Fenty Beauty has worked to diversify beauty offerings, debuting with a range of 40 foundation shades. Lauren Rearick, Teen Vogue, "Shade Inclusivity, Photoshop Bans, and Other Major Beauty Industry Wins in 2018," 27 Dec. 2018 This is a way to diversify your business, presumably, which is a business, right? Eric Johnson, Recode, "Why nonprofits should think more like tech companies," 14 Nov. 2018 This past July, the Education and Justice Departments issued a joint letter announcing the end of several Obama-era policies that asked universities to consider race in admissions as a way to diversify their student bodies. Chloe Foussianes, Town & Country, "A Timeline of the Harvard Affirmative Action Lawsuit," 2 Nov. 2018

These example sentences are selected automatically from various online news sources to reflect current usage of the word 'diversify.' Views expressed in the examples do not represent the opinion of Merriam-Webster or its editors. Send us feedback.

See More

First Known Use of diversify

15th century, in the meaning defined at transitive sense 1

History and Etymology for diversify

see diverse

Keep scrolling for more

Learn More about diversify

Statistics for diversify

Last Updated

23 Apr 2019

Look-up Popularity

Time Traveler for diversify

The first known use of diversify was in the 15th century

See more words from the same century

Keep scrolling for more

More Definitions for diversify

diversification

noun

Financial Definition of diversification

What It Is

Diversification is a method of portfolio management whereby an investor reduces the volatility (and thus risk) of his or her portfolio by holding a variety of different investments that have low correlations with each other.

How It Works

The basic idea behind diversification is that the good performance of some investments balances or outweighs the negative performance of other investments. For example, let’s assume that you work for Company XYZ--a beverage company--and you have $1 million to invest. Let’s further assume that you could invest all $1 million in your employer’s stock, or you could invest 50% in your employer’s stock and 50% in Company ABC, a healthcare stock.

If you invest all $1 million in Company XYZ stock, and the stock goes from $4 to $2 per share, your portfolio loses 50% of its value and you end up with $500,000.

Now let’s assume that you invested $500,000 in Company XYZ stock and $500,000 in Company ABC stock. The Company XYZ stock then goes from $4 to $2 but the Company ABC stock, which has very little in common with the Company XYZ stock in terms of factors that affect its price, goes from $6 to $7.50. The result is that $500,000 of your initial investment is now worth only $250,000 (this is the part invested in Company XYZ stock, which lost 50% of its value) but the other $500,000 is now worth $625,000 (this is the part invested in Company ABC stock, which rose by 25%). In this scenario, the portfolio goes from $1 million to $875,000. Still a loss, but not as bad as the $500,000 loss you would have suffered by putting everything in Company XYZ stock.

The big catch with diversification is that to do it well, the securities in the portfolio need to not “move together.” That is, the less correlated they are, the better. For example, if you invested everything in six different bank stocks, it’s fair to assume that what affects one bank stock probably affects the other bank stocks in your portfolio to some degree. Even though you’ve spread your money over several securities, you still suffer when one of your bank stocks has bad news. If you instead purchased a bank stock, a grocery stock, and a healthcare stock, you’d be investing in stocks that are less correlated with each other--that is, what affects one doesn’t necessarily affect the other. This diversification is great, but because they’re all stocks, any news that affects the stock market as a whole (say, an announcement about jobs) affects all of your stocks to some degree, no matter what industry they’re from.

This is why many investors go one step further and diversify across different asset classes. Stocks, bonds, and real estate are common asset classes. One common move is to invest in both stocks and bonds, because the stock and bond markets are historically negatively correlated, meaning that when the stock market is up the bond market is usually down and vice versa. Real estate and foreign stocks are also used to diversify portfolios.

Figuring out how to diversify across asset classes is what drives the practice of asset allocation. For example, an investor might choose to invest 20% of his portfolio in bonds, 70% in stocks, and 10% in real estate; but another investor, with different needs and expectations, might choose a different weighting. Determining the appropriate classes weightings for a particular investor is the essence of asset allocation as a method to optimize diversification.

Why It Matters

In our example above, you can see the difference that diversifying into just one other stock made. If you had invested in two more or three more stocks, the results may have been even better. However, there is no need to get carried away by trying to make a thousand different investments in a portfolio. That would be expensive and time-consuming, and you may not be able to take meaningful positions by dividing your money up into such small chunks. This is one reason that mutual funds and exchange-traded funds are popular--they offer an automatic basket of securities to the investor, although most experts agree that 25-30 stocks is enough to diversify a stock portfolio in a cost-effective manner (remember, buying and selling stocks incurs commissions).

Diversification does not guarantee millions in riches, but it does reduce risk. It’s one of the most fundamental, important investment concepts--one of the first pieces of investment advice most people get. One only needs to think about the Enron employees who placed all of their 401(k) savings in Enron stock to understand why failing to diversify is like betting the ranch on one roll of the dice.

Source: Investing Answers

diversify

verb

English Language Learners Definition of diversify

: to change (something) so that it has more different kinds of people or things
: to produce or sell more kinds of products : to increase the variety of goods or services produced or offered by (someone or something)

diversify

verb
di·​ver·​si·​fy | \ də-ˈvər-sə-ˌfī How to pronounce diversify (audio) , dī-\
diversified; diversifying

Kids Definition of diversify

: to change to include many different things The cafeteria has diversified its menu choices.

Keep scrolling for more

More from Merriam-Webster on diversify

Spanish Central: Translation of diversify

Nglish: Translation of diversify for Spanish Speakers

Britannica English: Translation of diversify for Arabic Speakers

Comments on diversify

What made you want to look up diversify? Please tell us where you read or heard it (including the quote, if possible).

WORD OF THE DAY

to move or proceed with twists and turns

Get Word of the Day daily email!

Test Your Vocabulary

Words from Greek and Latin Quiz

  • roman forum
  • Which of the following months comes from a Latin word for “ten”?
How Strong Is Your Vocabulary?

Test your vocabulary with our 10-question quiz!

TAKE THE QUIZ
SCRABBLE® Sprint

Test Your Knowledge - and learn some interesting things along the way.

TAKE THE QUIZ
Love words? Need even more definitions?

Subscribe to America's largest dictionary and get thousands more definitions and advanced search—ad free!