Question

Juan has some shares of risky stock from a start-up company, and other shares of stock from an established company with much less risk. It sounds as though Juan is diversifying his portfolio.

Answer 1

Answer: True

Explanation:

Diversifying a portfolio refers to investing in securities that either have a lower risk or risk that is not correlated such that the risk to the portfolio is reduced.

In this scenario, Juan is investing in different securities with varying risk levels so that the portfolio will not be completely wiped out if one security goes bust. To truly diversify his portfolio however, Juan should invest in more than other asset classes such as bonds