Question

Diversification is important in investing because...

Answer 1

Diversification is important in investing because "It helps you to balance your risk across different types of investments".

Explanation:

Diversification is a risk management approach that includes investing beyond or within various asset types to depreciate the ups and downs of economic exchanges. In different terms, diversification is thereby not owning all your eggs in one basket. Diversification goes by expanding properties beyond and within various asset types. Because asset types have their own individual financial rounds, when one class is making substantial profits, another may not be functioning as well. By expanding your purchases beyond and within distinct asset categories you’ll be in an immeasurable situation to offset the buoyancy of unique expenses.

Answer 2

 

Diversification is important in investing because the risk associated with the investment is lower.

Further Explanation:

Diversification is the strategy of investing in the market at a lower risk. In this strategy, the company, individual and corporation invest their savings in a different industry. So, the risk for the overall investment becomes lower. If the investor puts all of his savings in one industry and if that industry goes into depression, the whole saving of the investor has become futile. But the investor invests some of his money in two different industries and maybe one goes in depression then the loss occurred can be compensated by the profit from the other industry.  

Types of diversification:

• Industry diversification: In this type of diversification, the investor invests in the different industries of the market.
• Assets diversification: In this type of diversification, the investor invests in different instruments and assets of the company. For example, treasury bills, and mutual funds.
• Geographic diversification: In this type of diversification, the investor invests in a different location. For example, home country investment and foreign country investment.  
• Individual company diversification: In this type of diversification, the investor invests in a different company at his particular needs.  

Learn more:

1. Learn more about diversification

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2. Learn more about investment

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3. Learn more about risk-free rate

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Answer details:

Grade: Middle School

Subject: International business

Chapter: Diversification

Keywords: diversification, investing, because, the risk associated, lower risk, strategy, individual, compensate by profit, industry, assets, geographic.