University of Central Florida (UCF) GEB3006 Intro to Career Development and Financial Plannings Final Practice Exam 3

Maintaining a diversified investment portfolio is primarily beneficial because it minimizes risk across different types of investments. Diversification involves spreading investments across various asset classes, sectors, and geographical locations. This strategy helps to reduce the impact of poor performance from a single investment or sector on the overall portfolio.

When one type of investment performs poorly, another may perform well, balancing the overall performance. This is because different assets often react differently to market conditions; for instance, stocks may be volatile during economic downturns while bonds may be more stable. Thus, diversification can lead to a more consistent return over time and a reduction in the overall volatility of the investment portfolio.

The other options suggest guarantees or absolutes, which do not accurately reflect the nature of investing. No investment strategy can ensure profits in all investments, nor can it eliminate the need for monitoring. Additionally, while diversification enhances security by reducing risk, it cannot guarantee security in the market.