Question

The primary benefit of diversification​ is:

A. an equal reduction in risk and return.

B. a reduction in risk.

C. an increase in expected return.

D. Diversification has no real​ benefit; it is a shell game promoted by investment advisors who are the only real winners.

Answer 1

Answer:

(B) A reduction in risk

Explanation:

Diversification is necessary for investing. In this case, you invest your capital in different investments and you do not need to rely on a single investment for your returns and this also helps to reduce capital lost. Among saving your capital and receiving returns, reduction of capital loss is the primary benefit of diversification. If you invest your capital in one investment and the return is low or there is a poor performance, another investment might generate high returns over the same period of time and your capital loss is reduced.