Strategy Beginner: The Importance of Diversification

Test your knowledge

Choose wisely. There is only one correct answer to each question.

0%
Keep studying!
Review your answers below to learn more.
1.
What are the two most basic types of risk?
Choose wisely. There is only one correct answer.
Systematic and unsystematic. All other types of risk fall into these two categories.
2.
Financial advisors suggest diversifying because putting your money into different investments is often the best way to avoid losing large sums of money.
Choose wisely. There is only one correct answer.
True. Diversifying spreads risk among several investments.
3.
An investor can diversify by investing in different regions of the world.
Choose wisely. There is only one correct answer.
True. One can diversify in many ways. Choosing different regions is one way.
4.
A portfolio with negatively correlated assets reduces volatility.
Choose wisely. There is only one correct answer.
True. When some assets fall in value, others will rise in value, and vice versa.
5.
A slump in one industry can actually help other industries.
Choose wisely. There is only one correct answer.
True. In industries that meet similar needs, people may use the products or services of another industry if their preferred one experiences major problems. For instance, if there are problems in the airline industry, transportation needs may be met by driving or using trains.
6.
How does having a lot of money affect your risk tolerance?
Choose wisely. There is only one correct answer.
It can enable you to afford loss. If you have a lot of money, you can afford to lose some, and so your risk tolerance will increase.
7.
A fall in price of one security in a diversified portfolio may be offset by an increase in price of another.
Choose wisely. There is only one correct answer.
True. Problems in one industry may lead people to seek the products or services of another in your portfolio.