Diversification__________:
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A. B. C. D.B
Diversification is a risk management strategy that involves investing in a variety of assets or securities to reduce the overall risk of the portfolio. The principle behind diversification is that different assets have different risk and return profiles, and by combining them, the portfolio's risk can be reduced without necessarily sacrificing returns.
Answer (B) is the correct answer. Diversification is a way to reduce the volatility of investments. Volatility refers to the degree of fluctuation in an asset's price over time. By diversifying across different types of assets, such as stocks, bonds, and real estate, investors can reduce their exposure to any one particular asset class and, in turn, reduce the overall risk of their portfolio.
Answer (A) is not entirely accurate. While diversification can help mitigate losses in any particular market, it does not necessarily guarantee profits. The performance of any given market or asset class is largely determined by factors outside of an investor's control, such as global economic conditions or political events.
Answer (C) is also not accurate. While diversification is an important part of any long-term investment strategy, it is not the only way to generate profits. Investors can also profit by choosing the right assets, timing their investments correctly, and managing risk effectively.
Answer (D) is not entirely accurate either. While investing in hundreds of funds may provide a high degree of diversification, it is not necessarily required to achieve a well-diversified portfolio. A well-diversified portfolio can be achieved with just a handful of carefully chosen assets or funds. It's more important to focus on the quality of the investments, rather than the quantity.