6.3 Diversification – don’t put all your eggs in one basket
Many investors try to reduce their risk by investing in a large number of companies or other assets. We say that such investors hold a diversified portfolio of assets.
The benefit of investing in a diversified portfolio of assets is that the price of some assets may go down, while the price of others may increase. So, overall, a loss on some assets can be cancelled out by a gain on others.
There are various financial products that allow investors to hold diversified portfolios at a low cost.
Risk and returns
You can skip this activity if you are short on time. However, if you are thinking about making investments, then you should consider completing this activity.
Spend 30 minutes on the following brief article by the Financial Conduct Authority [Tip: hold Ctrl and click a link to open it in a new tab. (Hide tip)] (FCA).
This article provides more information about risks associated with investments such as shares issued by companies.
After reading the article, use the text box below to describe the relationship between risk and return (or write it down in your notepad).
Moving on
6.2 How does a stock market work?
