Financial literacy has become an essential determinant of investment behaviour as financial markets increasingly shift toward digital platforms and self-directed investing. Young investors now have unprecedented access to investment opportunities through online brokerage services, mobile trading applications, robo-advisors, and financial technology (FinTech) platforms. However, greater accessibility does not necessarily translate into sound investment decisions. Limited financial knowledge, behavioural biases, inadequate risk assessment, and overreliance on social media often lead young investors to construct poorly diversified portfolios that are highly vulnerable to market volatility. Investment diversification remains one of the most effective risk management strategies because it reduces unsystematic risk while improving long-term portfolio stability. Nevertheless, numerous empirical studies indicate that many young investors continue to exhibit concentrated investment patterns despite widespread availability of financial information. This study critically examines the relationship between financial literacy and investment diversification through a qualitative review of contemporary literature in finance, behavioural economics, and investment management. The analysis evaluates how financial knowledge influences asset allocation, portfolio diversification, risk tolerance, investment confidence, and long-term wealth creation. It further investigates the impact of behavioural biases, digital investment platforms, financial education, and regulatory initiatives on investment decisions among young investors. The findings indicate that higher financial literacy consistently promotes diversified investment strategies, rational decision-making, and greater financial resilience. Conversely, inadequate financial literacy contributes to excessive risk-taking, speculative trading, and concentrated portfolios. The study concludes that improving financial education, strengthening investor awareness programmes, and promoting evidence-based investment practices are essential for encouraging sustainable wealth creation and financial stability among young investors.