What can be reduced through diversification in a portfolio?

Diversification in a portfolio primarily seeks to reduce investment risks. When a portfolio contains a variety of assets that have different risk profiles or are not perfectly correlated, the overall risk can diminish because poor performance in some investments may be offset by better performance in others. This reduction in risk occurs because not all assets will react the same way to market events; for example, fluctuations in economic conditions may negatively affect certain industries while benefiting others.

On the other hand, market returns are influenced by systemic factors and the overall market performance, and diversification does not impact these directly. Investment costs, while they may be affected by portfolio choices or the types of assets selected, are not directly reduced through diversification itself. Similarly, the time for making investment decisions can vary depending on the complexity of the portfolio but isn't inherently decreased through the act of diversifying. Thus, the primary benefit of diversification is its capacity to lower the risk associated with the performance of an investment portfolio.