ECONOMICS
SAVING AND INVESTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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It helps you to balance your risk across different types of investments.
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It increases your overall risk, which guarantees that you will make more money.
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It ensures that you only make low-risk investments.
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It helps you gain the highest rate of return despite any risks.
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Detailed explanation-1: -Diversification helps mitigate the risk to you about such scenarios by choosing different investments and types of investments. Diversification doesn’t guarantee investment returns or eliminate risk of loss including in a declining market.
Detailed explanation-2: -It aims to minimize losses by investing in different areas that would each react differently to the same event. Most investment professionals agree that, although it does not guarantee against loss, diversification is the most important component of reaching long-range financial goals while minimizing risk.
Detailed explanation-3: -Diversification involves spreading your investment dollars among different types of assets to help temper market volatility. As a simple example, all equity (or stock) investments and most fixed income (or bond) investments are subject to market fluctuation.
Detailed explanation-4: -Diversification is the spreading of your investments both among and within different asset classes. And rebalancing means making regular adjustments to ensure you’re still hitting your target allocation over time. All are important tools in managing investment risk. These strategies are all about variety.
Detailed explanation-5: -Answer and Explanation: The answer is C). The idea behind diversification is that by adding stocks with different risk characteristics, investors could reduce exposure to idiosyncratic risks.