Many investments are part of a larger investment portfolio. This unit explored how to diversify a portfolio to help reduce overall risk. Recall the six types of diversification below: .Individual company diversification. A strong portfolio includes a mix of assets from different companies in a given industry.
.Industry diversification. Consider stocks in companies from a variety of industries. This strategy includes buying assets in unfamiliar industries.
.Asset class diversification. Invest in different asset classes, such as stocks, bonds, and real estate.
.Strategy diversification. Diversify strategically by investing in different assets within an asset class. For example, a diverse portfolio includes stocks from small and large companies.
.Geographic diversification. A specific economic region can’t give consistent results. So, invest in a mix of domestic and international stocks.
.Time diversification. Invest in different options considering your investment time period and risk tolerance. For example, long-term investments are less risky and often give better returns than short-term investments.
Part A
The table lists a variety of investments, along with their purchase cost and a description of their expected gains. Note that because the cost to purchase includes fees, this cost is higher than the initial purchase amount.