Portfolio diversiﬁcation
A) reduces the likelihood that the entire amount invested will be lost.
B) eliminates all risk of loss.
C) ensures that investors will receive a positive rate of return.
D) provides the maximum possible rate of return from an investment portfolio.

Question

Quizplus · Accepted Answer

By diversifying a portfolio, an investor spreads their investments across different asset classes, industries, and geographic regions, reducing the probability that all the investments will perform poorly simultaneously. This reduces the likelihood that the entire amount invested will be lost but it does not eliminate all risk of loss. Diversification does not guarantee a positive rate of return or the maximum possible rate of return from an investment portfolio.

Portfolio Diversiﬁcation