What is one major advantage of having a diversified investment portfolio?

Having a diversified investment portfolio primarily reduces investment risk, which is the key advantage of diversification. When an investor spreads their investments across different asset classes, sectors, or geographic locations, they are less vulnerable to the poor performance of any single investment. This is because different investments often react differently to market conditions; for example, if stocks are underperforming, bonds or real estate might be thriving. By not putting all capital into one type of investment, the overall portfolio volatility is decreased, and potential losses can be minimized.

In a diversified portfolio, if one asset loses value, others may remain stable or even increase, effectively cushioning the impact on the investor's total wealth. This strategy follows the principle of not "putting all your eggs in one basket," thereby providing a more stable investment experience over time, which aligns with long-term financial goals. It helps create a balance of risks and rewards, aiming for an optimal risk-return profile.