By diversifying among carefully selected, different asset classes, you reduce the risk of being over-exposed to any particular asset class.
For example, an investor may hold assets such as bonds, GICs, balanced funds, equity funds, foreign equities, etc. The adage of “not putting all your eggs in one basket” applies to a diversified portfolio of assets. Having 10 different equity funds in a portfolio does not mean that an investor’s portfolio is diversified.