An investor who puts all her funds into one asset ________ her portfolio's ________.
A) increases; diversification
B) decreases; diversification
C) increases; average return
D) decreases; average return

Question

Quizplus · Accepted Answer

By putting all her funds into one asset, the investor is reducing diversification in her portfolio, which is a risky move. If the asset performs poorly, the entire portfolio suffers. This also increases the portfolio's volatility and potentially reduces its overall return, therefore decreasing the portfolio's diversification.

An Investor Who Puts All Her Funds into One Asset