Certified Financial Planner (CFP) Practice Exam · Question
What is the primary benefit of asset diversification in an investment portfolio?
Diversification helps reduce unsystematic risk by spreading investments across different asset classes, industries, or geographies, aiming to minimize the impac
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Question: What is the primary benefit of asset diversification in an investment portfolio?
Answer options:
- To guarantee higher returns.
- To eliminate all investment risk. ✅ To reduce overall portfolio risk without necessarily sacrificing returns.
- To focus investments on a single, high-growth sector.
Correct answer: To reduce overall portfolio risk without necessarily sacrificing returns.
Explanation: Diversification helps reduce unsystematic risk by spreading investments across different asset classes, industries, or geographies, aiming to minimize the impact of poor performance from any single investment.
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