What is the benefit of “diversification”?

Question

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

By giving the investor advice on which stocks to purchase

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

Answer 1

Diversification is a risk management strategy that involves investing in a variety of different assets or securities in order to spread out risk and minimize the impact of a single company's poor performance or bankruptcy. This can help protect an investor's portfolio from significant losses due to unforeseen events or market fluctuations. Additionally, diversification can also potentially lead to increased returns over the long term by ensuring that the investor has exposure to a mix of different industries and sectors.