Which phrase describes investing in a number of different types of assets to spread risk?

• A. Diversify the Investments
• B. Mutual Fund
• C. Portfolio
• D. Express Trust

Answer: (A)

Diversification is the practice of investing in a number of different asset types to spread risk. By holding a mix of assets whose prices don’t move in perfect lockstep, you reduce the impact of any single investment’s poor performance on the whole portfolio. This works because different asset classes often respond differently to economic events, so losses in one area may be offset by gains or steadier returns in another. The phrase that describes this practice is “diversify the investments.”

A mutual fund is a pooled vehicle that can provide diversification, but it’s not the act of spreading risk itself. A portfolio is the collection of assets you own, which may be diversified, but it describes what you hold rather than the act of spreading risk. An express trust is a legal mechanism for holding and distributing assets, not about diversification.