Investors' do-it-yourself alternative to hedging is:
A) investing in a single stock
B) diversification
C) borrowing and investing in a single stock
D) none of the above

Question

Quizplus · Accepted Answer

Diversification is the best choice as it involves spreading one's investments across different types of assets, such as stocks, bonds, and real estate, to reduce risks. This way, if one investment does not perform well, the other investments can still perform well, thus minimizing the impact on overall portfolio performance. Investing in a single stock (A) exposes the investor to significant risks as the stock's performance could be impacted by various factors such as changes in the company's financials, industry performance, and overall market trends. Borrowing and investing in a single stock (C) is a risky strategy as any decline in the stock's value could lead to significant losses for the investor. Therefore, diversification is the best alternative to hedging.

Investors' Do-It-Yourself Alternative to Hedging Is