What is the primary goal of asset allocation?

The primary goal of asset allocation is to minimize risks across different asset categories. Asset allocation involves distributing investments among various asset classes, such as stocks, bonds, and cash, to achieve a balance that aligns with an investor's risk tolerance, investment goals, and time horizon. By diversifying investments across different asset categories, the overall risk of the portfolio is reduced, as the performance of different asset classes often reacts differently to economic conditions. This strategy helps in protecting the portfolio from significant losses that could arise from exposure to any single investment or asset class.

Maximizing short-term profit does not align with the fundamental purpose of asset allocation, which is focused on long-term risk management and performance stability. Evaluating credit risk of borrowers is specific to fixed income or lending strategies and does not encompass the broader practice of asset allocation. Focusing solely on stock investments ignores the benefits of diversification, which is the cornerstone of effective asset allocation. Thus, minimizing risks across different asset categories is indeed the essential goal behind this investment strategy.