Final answer:
Diversification is the practice of spreading investments across different assets to reduce risk and deal with various factors. It helps individuals and organizations minimize exposure to any single investment, reduces opportunity cost, and provides a strategy for managing risk in an investment portfolio.
Step-by-step explanation:
Diversification is the practice of spreading investments across different assets to reduce risk. It can help individuals and organizations deal with 1) risk by minimizing exposure to any single investment. Diversification is the practice of spreading investments across different assets to reduce risk and deal with various factors.
It helps individuals and organizations minimize exposure to any single investment, reduces opportunity cost, and provides a strategy for managing risk in an investment portfolio. Diversification can also mitigate the impact of unexpected events and reduce 3) opportunity cost by allowing for potential gains in multiple areas.
While diversification does not directly address 2) liquidity or 4) interest rates, it provides a strategy for managing and minimizing risk in an investment portfolio.