The primary purpose of portfolio diversiﬁcation is to:
A)increase returns and risks.
B)eliminate all risks.
C)eliminate asset-speciﬁc risk.
D)eliminate systematic risk.
E)lower both returns and risks.

Question

Quizplus · Accepted Answer

Portfolio diversification involves investing in a variety of assets in order to reduce asset-specific risk. By spreading investments across different asset classes, sectors, and industries, investors can lower the risk of losing money if a particular asset or sector performs poorly. Eliminating all risks or systematic risk is not possible through diversification, and diversification may not necessarily increase returns but can help to reduce overall risk.

The Primary Purpose of Portfolio Diversiﬁcation Is To