ECONOMICS
SAVING AND INVESTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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increases the risk/return ratio.
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limits investor choices to only one or two investment tools.
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indicates an investor is a good predictor of the return an investment will have.
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decreases risk by investing money in a variety of investment tools.
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Detailed explanation-1: -Diversification can help mitigate the risk and volatility in your portfolio, potentially reducing the number and severity of stomach-churning ups and downs. Remember, diversification does not ensure a profit or guarantee against loss.
Detailed explanation-2: -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-3: -A diversified portfolio minimizes the overall risk associated with the portfolio. Since investment is made across different asset classes and sectors, the overall impact of market volatility comes down. Owning investments across different funds ensures that industry-specific and enterprise-specific risks are low.
Detailed explanation-4: -Diversification has several benefits for you as an investor, but one of the largest is that it can actually improve your potential returns and stabilize your results. By owning multiple assets that perform differently, you reduce the overall risk of your portfolio, so that no single investment can hurt you too much.