Certified Financial Planner (CFP) Practice Exam · Question
Scenario 39: 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: Scenario 39: 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. The correct answer is "To reduce overall portfolio risk without necessarily sacrificing returns.". This capacity-fill scenario 39 reinforces the same competency for the cfp bank and follows the certified explanation standard.
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