Question

Diversification is important in investing because... a. It helps you to balance your risk across different types of investments. b. It increases your overall risk, which guarantees that you will make more money. c. It ensures that you only make low-risk investments. d. It helps you gain the highest rate of return despite any risks.

Answer 1

Answer: Option a

       

Explanation: Diversification in finance is the method of distributing resources in a manner that decreases the vulnerability to any particular commodity or risk.

A common way to diversify is by investing in a range of investments to minimize risk or uncertainty.

If asset values adjust in complete synchronization, a diverse portfolio will have less variation than its constituent assets ' weighted average variance, and often less variation than its constituents least volatile.