Financial Math: Building a Diversified Portfolio

What does diversification mean in the context of investing?

• Putting all your money into one investment

• Investing in different asset classes, industries, etc. to reduce risk

• Following a trading plan without any adjustments

• Competing against big players like banks and hedge funds

What is one of the main goals of all investors?

• To lose money in the first 6 months

• To have a diversified portfolio only

• To beat the market

• To follow the S&P 500 strictly

According to the text, what is the result of most people managing their own portfolio?

• They usually earn a higher return than the S&P 500

• They often wipe out their portfolio in the first 6 months

• They always make consistent profits

• They minimize their investment risk without any losses

Tags

CCSS.RI. 9-10.2

CCSS.RI.11-12.2

CCSS.RI.8.2

CCSS.RL.11-12.2

CCSS.RL.9-10.2

As of June 2021, what was the return of the diversified portfolio example started in September 2020 compared to the S&P 500?

• The diversified portfolio had a 12% return and the S&P 500 had a 20% return

• Both the diversified portfolio and the S&P 500 had a 20% return

• The diversified portfolio had a 20% return and the S&P 500 had a 12% return

• Both the diversified portfolio and the S&P 500 had a 12% return

Tags

CCSS.7.RP.A.3

What does it mean to diversify a portfolio?

• To invest all your money in one industry

• To build a portfolio with a variety of asset classes in different industries or sectors

• To purchase only technology stocks

• To keep all your money in the bank

How many different industries should your portfolio include at a minimum according to most advisors?

• 2

• 5

• 10

• 20

Why do people diversify their investment portfolio?

• To guarantee a profit

• To ensure they only invest in the stock market

• To stabilize a portfolio’s return and reduce the risk of losing money

• To focus on a single stock that will double or triple in price

What is the idea of Capital Preservation in the context of investing?

• To double the investment in a short period

• To preserve the money you have invested

• To invest in capital markets only

• To avoid diversifying your portfolio

What is the benefit of diversifying your portfolio as mentioned in the text?

• It guarantees that all stocks will increase in price

• It ensures that you will always pick the top-performing stocks

• It helps to make the portfolio returns less volatile and more likely to stay positive over time

• It allows you to focus on only one industry

Tags

CCSS.HSF.BF.A.2

For beginners, what is the maximum percentage of your portfolio that should be invested in any one stock, ETF, or mutual fund to avoid having too much money in one industry?

• 10%

• 20%

• 30%

• 50%