What is the primary goal of diversification in investing?

The primary goal of diversification in investing is to achieve average higher returns while simultaneously lowering risk. Diversification involves spreading investments across various asset classes, industries, and geographic regions, which helps to mitigate the impact of poor performance from any single investment or sector on the overall portfolio. By not putting all capital into one area, an investor can reduce volatility and minimize the likelihood of significant losses, as different investments often react differently to market conditions.

This strategy takes advantage of the correlation between different investments, as typically, when one investment is underperforming, another may be performing well. This balance can lead to more stable and favorable overall investment returns over time, thereby enhancing the risk-return profile of the portfolio compared to a heavily concentrated investment strategy.

In contrast, the other options do not accurately capture the intended purpose of diversification; for example, aiming for higher risk with minimal returns, the elimination of all risks, or concentrating capital in one investment contradict the fundamental principles of how diversification seeks to function in an investment strategy.