How can investors reduce the risk associated with an investment portfolio without having to accept a lower expected return?
A) Wait until the stock market rises.
B) Increase the amount of money invested in the portfolio.
C) Purchase a variety of securities; i.e., diversify.
D) Purchase stocks that have exceptionally high standard deviations.

Question

Quizplus · Accepted Answer

Diversification is the practice of investing in a variety of securities, such as stocks, bonds, and mutual funds, to reduce the risk associated with any single security. By diversifying, investors can reduce the risk associated with their portfolio without sacrificing expected returns. This is because a diversified portfolio is less likely to be affected by the poor performance of any one security or market sector.

How Can Investors Reduce the Risk Associated with an Investment