The main function of diversified investments is to:A.quickly earn as much return on investment as possible.B.protect an investment from government fees and taxes.C.make a variety of investments to balance risk and return.D.make sure that an investment does not lose money.
Question
The main function of diversified investments is to:A.quickly earn as much return on investment as possible.B.protect an investment from government fees and taxes.C.make a variety of investments to balance risk and return.D.make sure that an investment does not lose money.
Solution
The main function of diversified investments is to: C. make a variety of investments to balance risk and return.
Here's why: Diversification is a risk management strategy that mixes a wide variety of investments within a portfolio. The rationale behind this technique is that a portfolio of different kinds of investments will, on average, yield higher returns and pose a lower risk than any individual investment found within the portfolio. Diversification strives to smooth out unsystematic risk events in a portfolio, so the positive performance of some investments neutralizes the negative performance of others.
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