What is the primary goal of having a Diversified Portfolio?

The primary goal of having a diversified portfolio is to reduce risk through a variety of asset classes. Diversification involves spreading investments across different types of assets—such as stocks, bonds, real estate, and commodities—so that the performance of one asset or asset class does not overly influence the overall portfolio. When one investment is underperforming, others may perform well, helping to balance out the overall risk and return.

This strategy is grounded in the principle that asset classes do not move in sync with one another; when one asset class experiences a decline, another may be stable or rising. By diversifying, investors aim to minimize volatility and potential losses while still capturing reasonable returns. This contrasts with strategies that focus solely on high-risk investments or concentrate investments in specific sectors, which can lead to increased risk and potential for greater losses.