When diversifying a portfolio, what is a primary goal investors strive to achieve?

When diversifying a portfolio, a primary goal investors strive to achieve is to minimize risk. Diversification involves spreading investments across various asset classes, industries, or geographical regions to reduce the impact of any single investment's poor performance on the overall portfolio. The rationale behind this strategy is that different assets often react differently to the same economic event; while some may decline in value, others may not be affected or may even increase in value.

By minimizing risk through diversification, investors aim to create a more stable investment experience, which can lead to a more consistent return over time. This approach helps to safeguard against volatility and potential losses, especially during periods of economic uncertainty or market downturns.

While maximizing returns is certainly a goal for many investors, focusing solely on returns without considering risk can be dangerous. Likewise, enhancing liquidity or increasing turnover are not primary objectives of diversification but may relate to liquidity management and active trading strategies in different contexts. Thus, the core reason for diversification is fundamentally about risk management rather than merely aiming for higher returns.