The principle of diversification tells us that:
A)concentrating an investment in two or three large shares 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 states that spreading an investment across many diverse assets will eliminate some of the risk. It does not eliminate all risk, but it can help to reduce the overall risk of an investment portfolio. This is because different assets can have different risks and returns, and by diversifying, investors can potentially benefit from the good performance of some assets while minimizing the impact of poor performance in others.

The Principle of Diversification Tells Us That