The principle of diversification tells us that:
A) concentrating an investment in two or three large stocks will eliminate all of your risk.
B) concentrating an investment in three companies all within the same industry will greatly reduce your overall risk.
C) spreading an investment across five diverse companies will not lower your overall risk at all.
D) spreading an investment across many diverse assets will eliminate all of the risk.
E) spreading an investment across many diverse assets will eliminate some of the risk.

Question

Quizplus · Accepted Answer

The principle of diversification tells us that spreading an investment across many diverse assets will eliminate some of the risk. While diversification cannot completely eliminate all risk, it can help to reduce the overall risk by spreading investments across different assets and industries. This way, if one asset or industry performs poorly, the overall impact on the portfolio will be lessened because it is diversified.

The Principle of Diversification Tells Us That