What does a diversified investment portfolio aim to achieve?

A diversified investment portfolio aims to minimize risk through asset variety. When investors diversify their portfolios, they spread their investments across a wide range of asset classes, such as stocks, bonds, real estate, and commodities. This strategy reduces the impact of poor performance from any single investment on the overall portfolio. By holding a variety of investments, the negative performance of one asset can potentially be offset by the positive performance of others, thereby providing more stability and reducing volatility.

Diversity in an investment portfolio also allows investors to capture different market opportunities and provides a cushion against market fluctuations. It's important to note that while diversification can significantly lower risk, it does not completely eliminate all market risk. Thus, a diversified portfolio aims for a balanced approach, seeking to achieve a reasonable return while managing risk effectively.