Normally, lowering risk means lowering expected return. Diversification is the exception: by holding many assets whose fortunes aren't perfectly correlated, you reduce the volatility of the whole portfolio without giving up its expected return, because individual disasters get averaged out. Harry Markowitz won a Nobel Prize for formalizing this, and it's the closest thing finance has to a free lunch.
The practical failure mode is concentration you don't recognize as concentration. Holding ten tech stocks isn't diversification — they crash together. Holding your employer's stock while employed there is worse: a single bad event takes your job and your savings simultaneously. Broad diversification means across companies, sectors, geographies, and asset classes. The uncomfortable corollary is that diversification guarantees you'll always own something that's performing badly — that's not a flaw, that's the mechanism working. If everything you own is going up together, you're not diversified.
In 2001 Enron's employees provided the most brutal possible demonstration of concentration risk. The company had heavily encouraged staff to hold Enron stock in their 401(k) retirement plans, and many held the overwhelming majority of their retirement savings in it — some over 60% of plan assets were in company stock. When the accounting fraud unravelled, the stock fell from around $90 to under $1 in roughly a year. Employees lost their jobs and their retirement savings in the same event, from the same cause, at the same moment — the two risks they were exposed to were perfectly correlated. Roughly $1 billion in employee retirement value evaporated. Harry Markowitz's 1952 insight, that what matters is not each asset's risk but how assets move together, was the exact thing Enron's retirement plan violated.