Question

Which of the following is a true statement about diversification?

A) It will increase your overall risk.
B) It will increase your volatility.
C) It will decrease the number of investments in your portfolio.
D) It will increase your chances of obtaining your financial goals.

Answer 1

Diversification increases your chances of obtaining your financial goals by spreading investments across different asset classes, thereby reducing risk and mitigating volatility.

Step-by-step explanation:

The correct statement about diversification in invesments is that it increases your chances of obtaining your financial goals. Diversification involves spreading your investments across various asset classes, such as stocks, bonds, and mutual funds, rather than committing all your money to a single investment. By diversifying, you reduce the risk that comes from exposure to any one particular asset. The idea is that when one investment performs poorly, another might do well, which helps to balance performance and mitigate volatility. Ultimately, with a diversified portfolio, you are less likely to experience extreme increases or decreases in your investments' value.

Answer 2

Diversification will increase your chances of obtaining your financial goals.

Step-by-step explanation:

Statement: Diversification will increase your chances of obtaining your financial goals.

Diversification is a strategy that involves spreading investments across different assets in order to reduce risk. It helps to protect your investments from the fluctuations of any single investment or market. By diversifying your portfolio, you are increasing your chances of achieving your financial goals because the risk is spread out.

D) It will increase your chances of obtaining your financial goals.

Diversification involves spreading investments across different assets or types of investments to reduce risk. By diversifying, you can potentially benefit from a variety of investment opportunities and avoid being overly exposed to the performance of a single investment. While it may not eliminate risk entirely, diversification is generally considered a strategy to manage risk and improve the chances of achieving financial goals.