Zachary holds 15 stocks in his portfolio. The portfolio's return last year was 11%, but one stock, RJH, doubled in value. What should Zachary do if he wants to be as diversified as he was at the beginning of the year?
A) Sell some of the RJH because it now constitutes a higher percentage of his holdings.
B) Sell the worst performing stock and use the proceeds to buy more RJH.
C) Wait for the price for RJH and the remaining stocks to rise so the proportions are reestablished.
D) Sell the RJH and buy a cheaper stock in the same industry.

Question

Quizplus · Accepted Answer

To maintain the same level of diversification as at the beginning of the year, Zachary should sell some of the RJH stock because its value doubling means it now makes up a larger portion of his portfolio than it did initially, reducing his diversification.

Zachary Holds 15 Stocks in His Portfolio