Which of the following strategies is most likely associated with a diversified investment portfolio?

Which of the following strategies is most likely associated with a diversified investment portfolio?

• A. Focusing investments solely in real estate
• B. Spreading investments across various sectors
• C. Concentrating wealth in high-risk stocks
• D. Prioritizing investments in startup technology firms

Answer: (B)

A diversified investment portfolio aims to spread risk and enhance the potential for returns by investing in a range of assets. By spreading investments across various sectors, an investor can mitigate the impact of poor performance in any single area, as different sectors may perform differently under various economic conditions. This strategy helps to balance risk and reward, as losses in one investment can be offset by gains in others, leading to a more stable overall performance. Investing across various sectors can include equities, fixed income, real estate, commodities, and other asset classes, making it a fundamental approach for risk management in investment. In contrast, focusing investments solely in real estate or concentrating wealth in high-risk stocks limits exposure and may increase vulnerability to sector-specific downturns. Similarly, prioritizing investments in startup technology firms can be risky due to the inherent volatility and uncertainty associated with early-stage companies, lacking the breadth found in a diversified approach.

A diversified investment portfolio aims to spread risk and enhance the potential for returns by investing in a range of assets. By spreading investments across various sectors, an investor can mitigate the impact of poor performance in any single area, as different sectors may perform differently under various economic conditions.

This strategy helps to balance risk and reward, as losses in one investment can be offset by gains in others, leading to a more stable overall performance. Investing across various sectors can include equities, fixed income, real estate, commodities, and other asset classes, making it a fundamental approach for risk management in investment.

In contrast, focusing investments solely in real estate or concentrating wealth in high-risk stocks limits exposure and may increase vulnerability to sector-specific downturns. Similarly, prioritizing investments in startup technology firms can be risky due to the inherent volatility and uncertainty associated with early-stage companies, lacking the breadth found in a diversified approach.