What is the primary goal of a diversified investment portfolio?

A diversified investment portfolio primarily aims to minimize risks and stabilize returns over time. By spreading investments across various asset classes—such as stocks, bonds, real estate, and other securities—an investor can reduce the impact that any single investment's poor performance may have on the overall portfolio.

Diversification works on the principle that different assets will react differently to market conditions. When one asset class may be underperforming, another may be experiencing gains, which helps to balance potential losses. This strategy not only aims to protect the investor’s capital but also to achieve a more stable return over the long term, as opposed to chasing maximum short-term gains or focusing solely on high-risk investments, which can lead to significant volatility and financial loss.