What is the practice of spreading investments across various assets called?

What is the practice of spreading investments across various assets called?

• A. Investing
• B. Asset allocation
• C. Diversification
• D. Risk management

Answer: (C)

The practice of spreading investments across various assets is known as diversification. This strategy is used to reduce risk in an investment portfolio by not putting all your eggs in one basket. By diversifying, an investor can mitigate the potential negative impact of any single asset's poor performance since different assets generally respond differently to market conditions. For example, if one sector declines, others might remain stable or even grow, thus balancing overall returns. In terms of the other choices, investing refers generally to the act of putting money into financial schemes to earn a profit— a broader concept that includes various strategies. Asset allocation is the process of deciding how to distribute an investor's funds among different asset categories, such as stocks, bonds, and cash, but it does not specifically refer to the practice of spreading investments across different assets. Risk management involves analyzing potential risks and taking steps to minimize their impact but is not the same as the act of diversifying investments to achieve that goal.

The practice of spreading investments across various assets is known as diversification. This strategy is used to reduce risk in an investment portfolio by not putting all your eggs in one basket. By diversifying, an investor can mitigate the potential negative impact of any single asset's poor performance since different assets generally respond differently to market conditions. For example, if one sector declines, others might remain stable or even grow, thus balancing overall returns.

In terms of the other choices, investing refers generally to the act of putting money into financial schemes to earn a profit— a broader concept that includes various strategies. Asset allocation is the process of deciding how to distribute an investor's funds among different asset categories, such as stocks, bonds, and cash, but it does not specifically refer to the practice of spreading investments across different assets. Risk management involves analyzing potential risks and taking steps to minimize their impact but is not the same as the act of diversifying investments to achieve that goal.