Which level of diversification would help you minimize your risk MOST:BasicIntermediateAdvancedExplain your thinking.
Question
Which level of diversification would help you minimize your risk MOST:
- Basic
- Intermediate
- Advanced
Explain your thinking.
Solution
The level of diversification that would help you minimize your risk most is Advanced.
Here's the step-by-step explanation:
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Basic Diversification: This is the initial level of diversification where you spread your investments across different asset classes such as stocks, bonds, and cash. While this does reduce risk to some extent, it is not the most effective way to minimize risk because it doesn't take into account the correlation between different asset classes.
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Intermediate Diversification: This level involves diversifying within each asset class. For example, within the asset class of stocks, you could diversify across different sectors such as technology, healthcare, and finance. This further reduces risk, but still doesn't fully minimize it because it doesn't take into account the correlation between different sectors within an asset class.
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Advanced Diversification: This is the highest level of diversification. It involves diversifying
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