The primary benefit of diversification is ________.
A)an increase in expected return
B)an equal reduction in risk and return
C)a reduction in risk
D)Diversification has no real benefit; it is a shell game promoted by investment advisors who are the only real winners.

Question

Quizplus · Accepted Answer

Diversification allows investors to spread their investments across different assets, industries, and sectors, reducing their exposure to risks associated with any one specific investment. As a result, diversification can lead to a reduction in overall portfolio risk without sacrificing potential returns, making it a valuable strategy for investors looking to protect and grow their wealth over time. Option A is incorrect because diversification does not necessarily increase expected returns; rather, it helps to manage risk. Option B is incorrect because diversification does not necessarily result in an equal reduction in risk and return. Option D is incorrect because diversification is a legitimate investment strategy that has been proven to be effective by countless studies and investment professionals.

The Primary Benefit of Diversification Is ________