Diversification is the practice of spreading investments across different assets to reduce risk.

Diversification is the practice of spreading investments across different assets to reduce risk.

• A. Asset Allocation
• B. Dollar Cost Averaging
• C. Diversification
• D. Certification

Answer: (C)

Diversification reduces risk by spreading investments across different assets. When you don’t put all your money into one investment, the portfolio’s overall performance isn’t tied to any single asset’s fate. Different assets often react differently to the same events, so some may drop while others hold steady or rise, which lowers overall volatility and helps smooth returns over time. Asset allocation is about deciding the mix among broad asset classes (like stocks, bonds, cash) to target a balance of risk and return, and diversification can be part of that plan. Dollar-cost averaging is a method of investing a fixed amount regularly, which helps with purchase timing but doesn’t by itself spread risk across assets. Certification is unrelated to investing concepts.

Diversification reduces risk by spreading investments across different assets. When you don’t put all your money into one investment, the portfolio’s overall performance isn’t tied to any single asset’s fate. Different assets often react differently to the same events, so some may drop while others hold steady or rise, which lowers overall volatility and helps smooth returns over time.

Asset allocation is about deciding the mix among broad asset classes (like stocks, bonds, cash) to target a balance of risk and return, and diversification can be part of that plan. Dollar-cost averaging is a method of investing a fixed amount regularly, which helps with purchase timing but doesn’t by itself spread risk across assets. Certification is unrelated to investing concepts.