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What is a benefit to investment diversification quizlet?


Investment diversification is the practice of investing in a variety of different assets in order to spread risk and reduce the impact of any one investment on the overall portfolio. Some benefits of investment diversification include:

1. Risk reduction: By diversifying a portfolio across different assets, investors can help to reduce the overall risk of their portfolio. This can help to mitigate the impact of any one investment on the portfolio's performance.

2. Improved returns: Investment diversification can help to smooth out the impact of market fluctuations and reduce the overall volatility of a portfolio. This can lead to potentially higher returns over the long term.

3. Increased flexibility: A diversified portfolio can provide investors with greater flexibility to respond to changing market conditions. This can allow investors to make informed decisions about their investments without the added pressure of worrying about the overall performance of their portfolio.

4. Enhanced portfolio diversification: Investment diversification can also help investors to diversify their portfolio beyond just the type of investment they are making. For example, an investor may diversify their portfolio by including both domestic and international investments, or by investing in both stocks and bonds.

Overall, investment diversification is an important strategy for investors looking to manage risk and potentially improve their returns. By considering a range of different investments, investors can create a portfolio that is well-suited to their financial goals and risk tolerance.