What does it indicate if a student has four individual stocks worth $2,500 each?

Having four individual stocks, each worth $2,500, indicates that the student is not adequately diversified. Diversification refers to the strategy of spreading investments across various financial instruments, industries, and other categories to reduce risk. While holding four stocks is better than having all investments in one stock, it may not be sufficient to mitigate risk effectively.

A concentrated portfolio, like the one described, can expose the student to specific risks associated with each of the individual companies. If one of the companies performs poorly or is impacted by adverse market conditions, the loss can significantly affect the overall portfolio. Adequate diversification typically involves investing in a broader array of assets, including different sectors and types of investments, to ensure that the performance of one does not disproportionately affect the entire portfolio. Therefore, simply having four stocks does not guarantee that the student’s investment strategy is well-diversified.