Question

What is the benefit of “diversification”?


A. To protect the investor from the risk of a single bad day in the market


B. By giving the investor advice on which stocks to purchase


C. To protect the investor from the risk of a single company that performs poorly or goes bankrupt

Answer 1

C. To protect the investor from the risk of a single company that performs poorly or goes bankrupt

Diversification helps spread the investment across different assets, industries, or regions, reducing the overall risk in a portfolio. This way, if one investment underperforms or fails, the impact on the overall portfolio is minimized.