What could be a negative consequence of not diversifying one's investment portfolio?

Not diversifying one's investment portfolio can lead to increased risk due to concentration in a few assets. When an investor focuses their investments on a limited number of assets, the performance of their portfolio becomes heavily reliant on those specific investments. If one or more of those assets perform poorly, it can significantly harm the overall portfolio, leading to greater volatility and potential losses.

On the other hand, diversification involves spreading investments across various asset classes and sectors, which can help mitigate risk. By investing in a range of assets, any negative performance in one area can be offset by positive performance in another. Consequently, a well-diversified portfolio typically experiences less dramatic fluctuations in value, providing a more stable return over time.

This understanding highlights the importance of diversification as a risk management strategy in investing, contrasting with the notion that focusing solely on a few investments could yield higher returns, which also comes with heightened risk.