Diversification provides safety through investments in many different companies and industries. All investors need diversification in their long-term investment plan. Diversification means you do not have your entire, or a large portion, of your savings and investments in one company, industry or asset class.
A prudent investment strategy requires an investor to be diversified - not just among many companies, but also between industries. Broad based mutual funds or ETFs will provide the necessary diversification for most investors. Mutual funds typically own hundreds of different securities - stocks, bonds, or both. Funds which provide “total” market coverage will own thousands of different securities.
To understand the impact of a “non-diversified” investment plan, recall the pain any employees of Lehman Brothers, Enron, and the automotive companies experienced when their employers went bankrupt and much of their retirement savings were invested in the stock of their company. It is never a good idea to invest your retirement plan in more than 10% of the stock of your employer - if your employer goes out of business, you not only lose your job but a portion of your retirement assets as well.