Explain how a diversified portfolio can reduce fluctuations in returns even when the economy as a whole is experiencing contractions and expansions
If an investor divides her holdings among various companies, then her portfolio may perform satisfactorily even if one company goes broke. Moreover, if one company specializes in producing luxury items, which do well in prosperous periods but very badly during recessions, and another company sells inexpensive items, economic fluctuations will impact these companies in opposite directions. In effect, the "ups" and "downs" will offset each other. If an investor holds stock in both companies, her overall risk is obviously less than if she owned stock in only one. All other things being equal, a portfolio containing many different types of securities tends to be less risky and feature less fluctuations in returns than a portfolio with fewer types of securities
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If a policymaker wants to stimulate the economy, a ________ would be preferable to a ________
A) lower-valued multiplier; higher valued multiplier B) high MPS; low MPS C) low MPC; high MPC D) high MPC; low MPC
Brazil, Russia, and Thailand are referred to as:
A. Industrially advanced countries B. Middle-income developing countries C. Low-income developing countries D. Command economies