video: what is diversification? lets take a closer look at the second strategy mentioned in the previous…

video: what is diversification? lets take a closer look at the second strategy mentioned in the previous video to manage investment risk - diversification. watch this video to learn about the difference between diversifying by asset class and diversifying across investments. then answer the questions. 1. fill in the blanks: diversification means choosing a bunch of different investments to help reduce your risk. 2. the video describes two ways to diversify. give an example for each one. a. diversify across asset classes (i.e. choosing the main parts of your portfolio) b. diversify within each asset class (e.g. choosing which stocks to buy) 3. the video says “keep in mind that diversification does not mean youre guaranteed to profit or that youre protected against loss.” why is it still a good idea to diversify your investments?

video: what is diversification? lets take a closer look at the second strategy mentioned in the previous video to manage investment risk - diversification. watch this video to learn about the difference between diversifying by asset class and diversifying across investments. then answer the questions. 1. fill in the blanks: diversification means choosing a bunch of different investments to help reduce your risk. 2. the video describes two ways to diversify. give an example for each one. a. diversify across asset classes (i.e. choosing the main parts of your portfolio) b. diversify within each asset class (e.g. choosing which stocks to buy) 3. the video says “keep in mind that diversification does not mean youre guaranteed to profit or that youre protected against loss.” why is it still a good idea to diversify your investments?

Answer

Brief Explanations:

  1. Diversification spreads risk by investing in various instruments. Different investments have unique risk - return profiles.
  2. a. An example of diversifying across asset classes could be having a mix of stocks, bonds, and real estate in a portfolio. Stocks offer high - return potential but high risk, bonds are more stable, and real estate can provide long - term appreciation and income. b. An example of diversifying within an asset class (stocks) is buying stocks from different industries like technology (e.g., Apple), consumer goods (e.g., Procter & Gamble), and healthcare (e.g., Johnson & Johnson). This reduces industry - specific risk.
  3. Diversification is still a good idea because while it doesn't guarantee profit or prevent losses, it reduces the impact of poor performance of a single investment. For example, if one industry's stocks perform poorly due to a sector - specific issue (like a new regulation affecting the tobacco industry), other industries' stocks in the portfolio may not be affected, thus cushioning the overall portfolio's decline.

Answer:

  1. a number of different investments; risk
  2. a. A portfolio with stocks, bonds, and real estate. b. Buying stocks from technology, consumer goods, and healthcare industries.
  3. It reduces the impact of poor performance of a single investment.