2.04 Diversifying Your Investment - CLASSWORK

What is the main purpose of diversification in an investment portfolio?

• To increase risk

• To manage risk by investing in a variety of asset classes

• To focus on a single asset class

• To ensure all investments are in technology stocks

Which of the following is NOT a diversification strategy mentioned in the text?

• Investing only in technology stocks

• Thinking globally with investments

• Using index funds

• Periodic rebalancing

What is a benefit of holding cash in your investment portfolio?

• It eliminates all investment risks

• It provides protection during market selloffs

• It guarantees high returns

• It ensures constant growth

What is a target-date fund?

• A fund that adjusts its asset allocation as you approach a specific date

• A fund that invests only in bonds

• A fund that invests only in stocks

• A fund that requires daily management

Why is periodic rebalancing important for a diversified portfolio?

• To eliminate all risks

• To maintain the appropriate weight for each investment

• To focus solely on high-performing stocks

• To increase the number of investments

What is a potential downside of being over-diversified?

• High fees with little diversification benefit

• Limited investment options

• Guaranteed losses

• Increased risk

What is the role of index funds in diversification?

• To build a diversified portfolio at a low cost

• To focus on a single company

• To eliminate all market risks

• To invest only in emerging markets

What is the risk of holding multiple funds in the same category?

• It guarantees higher returns

• It may lead to overlapping investments

• It reduces management fees

• It increases diversification

Why should investors consider international diversification?

• To protect against events impacting only the U.S.

• To focus only on the U.S. market

• To invest only in developed countries

• To avoid all risks

What is the main idea behind diversification according to the text?

• To invest only in high-risk assets

• To predict the future accurately

• To accept uncertainty and protect against it

• To focus on short-term gains