Question

Belinda just inherited​ $10,000 from her​ grandfather, and she wants to invest it in the stock market. Rather than investing the entire​ $10,000 in the stock of one​ company, she decides to buy​ $2,000 of stock in each of five different​ companies, all in different sectors of the economy.​ Belinda's investment strategy is referred to as​ ________.

Answer 1

Answer:

The strategy is called sector-wise diversification.

Explanation:

This is an excellent way to diversify and distribute the risk as if we only invest in companies in one sector of the economy, if that sector is affected by poor economic conditions, the companies in that sector will under perform and the entire portfolio will go down in value.

However, if we diversify the risk among different sectors such as agriculture, consumer goods, banks and financial services, diversified holdings, food and beverages, etc.. even if a sector falls under difficult times, the rest of the portfolio will only be slightly affected,