Diversification vs VTSAX

What advantage do I gain by holding a mix of mutual funds over just VTSAX?

One oughtn’t put all one’s eggs in one basket. One mitigates risk by holding multiple distinct asset classes in multiple instruments.

If I buy today’s high-flying stock, I risk its bankruptcy tomorrow. However, the risk of all the publicly traded companies in the US going bust simultaneously is infinitesimal. If I own VTSAX (a broad based stock index fund), then Amazon can eat K-Mart’s lunch: though I own both I gain more from Amazon’s superior operating efficiency than I lose from K-Mart’s demise.

This leads me to believe VTSAX is a diversified asset even though it holds only one asset class (equities).

Conventional wisdom says to diversify into different assets classes (e.g. bonds) to mitigate risk. But bonds and bond-funds have a lower secular returns. If the economy tanks so badly that VTSAX becomes risky, bond funds will be similarly at risk.

I can see the advantage of rebalancing after sharp drops in equities. Are the lost gains in a bond fund less than the greater gains when I periodically rebalance? What are other asset classes to consider for rebalancing beyond stocks and bonds? Real estate?