Diversification can help an investor manage risk and reduce the volatility of an asset's price movements. ... You can reduce the risk associated with individual stocks, but general market risks affect nearly every stock and so it is also important to diversify among different asset classes.
It is also important to diversify the investments because if the investor was to put all their money in one company, it could fail and then they would lose their money. ... The benefit of saving in an account that has a compound interest because it'll help the investor to earn interest.
Terms in this set (17)
Diversification refers to the expansion of an existing firm into another product line or market. It may be related or unrelated. It allows firms to expand their product lines and operating in several different economic markets.
Why is it important to diversify your financial holdings across financial assets? ... A portfolio is a set of multiple investments in different assets. A diverse portfolio reduces your exposure to the adverse effects of any one investment.
Shares present risks and benefits. The chief risks being capital loss, price volatility and no guarantee of dividends. Benefits of shares include the opportunity for capital growth, dividend income, flexibility and control.
In summary, a diversification strategy can be a goldmine in terms of reach and revenue, but it comes with an element of risk. Companies should look to pursue other growth strategies first, and only consider diversification once their current product or current market no longer offers opportunities for further growth.
Investing is an essential part of the free enterprise system. When businesses use investments to expand and grow, they create new and better products and provide new jobs. Explain the concepts of "return and liquidity" and "return and risk".
Reduces risk by spreading money among a wide array of investments. ... When a company combines the funds of many different investors and then invests that money in a diversified portfolio of stocks and bonds.
If more people want to buy a stock (demand) than sell it (supply), then the price moves up. Conversely, if more people wanted to sell a stock than buy it, there would be greater supply than demand, and the price would fall.
The Reasons for diversification is to increase organizational capabilities. Diversification strategies are used to expand firms' operations by adding markets, products, services, or stages of production to the existing business.
The purpose of diversification is to reduce risk. an optimum mix such any change would either increase risk or reduce return.
Diversification is a risk management strategy that mixes a wide variety of investments within a portfolio. ... The rationale behind this technique is that a portfolio constructed of different kinds of assets will, on average, yield higher long-term returns and lower the risk of any individual holding or security.
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