Diversiﬁcation in one's investments reduces

Question

Quizplus · Accepted Answer

Diversification refers to the practice of spreading your investments across different asset classes and sectors in order to reduce the risk of having all your investments affected by any one economic or market event. By doing so, you are reducing the concentration of a particular risk in any one asset class. Diversification helps to reduce idiosyncratic risk, which is the risk of loss due to the specific factors affecting a particular company or asset. It does not necessarily reduce systemic or pooling risk, which refers to the risk of loss due to factors affecting an entire market or economy. Time preference risk is a different type of risk altogether, referring to the risk of changing value due to inflation or changes in interest rates over time.

Diversiﬁcation in One's Investments Reduces