Why is it so difficult to identify a group of assets or other techniques that can fully eliminate portfolio risk?
A)They types of assets that can eliminate portfolio risk are only available to professional money managers
B)The lack of a full hedge for the lifetime work-related income streams we call human assets
C)The volatility of portfolio returns over time
D)All of the above
E)None of the above

Question

Quizplus · Accepted Answer

The lack of a full hedge for the lifetime work-related income streams we call human assets is a major reason why it is difficult to fully eliminate portfolio risk. While diversification and other techniques can help mitigate risk, there is no perfect solution that can completely eliminate risk. Option A is incorrect because there are assets available to individual investors that can help reduce portfolio risk, such as bonds or index funds. Option C is also incorrect, as volatility is a natural characteristic of investing and cannot be completely eliminated. Option D combines the correct answer (B) with incorrect statements.

Why Is It So Difficult to Identify a Group of Assets