What is the main goal of diversification in investment?

The primary goal of diversification in investment is to reduce risk by spreading investments across various asset classes. By allocating funds among different types of investments—such as stocks, bonds, real estate, and commodities—an investor can mitigate the impact of a poor-performing asset on the overall portfolio. If one asset category experiences a downturn, other investments may perform well, helping to buffer the overall performance. This strategy can lead to a more stable and consistent return over time, as it is highly unlikely that all asset classes will underperform simultaneously. Essentially, diversification can help manage the risk associated with the inherent volatility of financial markets, making it a fundamental principle in effective investment management.