There are two important reasons to diversify your investment portfolio:
To take maximum advantage of market conditions
To protect yourself against downturns
Taking advantage of different markets
Each of the traditional asset classes — stocks, bonds, and cash — tends to produce its strongest returns under different market conditions than the other asset classes do.
For example, stocks often shine when corporate earnings are strong and financial markets are expanding. Yet this same environment frequently has the opposite effect on bonds, so that they provide lower than average returns.
On the other hand, bond returns often rise in a period when stock values drop. That may happen when interest rates go up or when corporate earnings don't meet investor expectations. If you have some money in both stocks and bonds, you'll be in a position to benefit from owning the one that's up, while limiting your losses on the one that's down.
Protection against downturns
If your investments are narrowly focused — for example, if you own stock in just one company or stock in three companies in the same industry or area of the economy — the value of your portfolio can drop sharply if that company or industry provides disappointing returns. But if you own stocks of different-sized companies in different parts of the economy, even if some investments go down in value, others may remain stable or go up. In any case, different types of stocks are not as likely to lose value at the same rate or at the same time.
For example, stocks often shine when corporate earnings are strong and financial markets are expanding. Yet this same environment frequently has the opposite effect on bonds, so that they provide lower than average 
On the other hand, bond returns often rise in a period when stock values drop. That may happen when 
Don Kittell