What is the primary reason investors diversify their portfolios?

To guarantee profits To eliminate all investment risk To reduce the risk associated with holding only one type of asset To maximize short-term gains

What is a potential drawback of over-diversification in a stock portfolio?

Increased exposure to market volatility Higher transaction costs due to frequent trading Diminished returns due to the inclusion of less-performing assets Increased complexity in managing a large number of stocks

According to the article, what is generally considered the optimal range for the number of different assets in a well-diversified portfolio?

5-10 15-30 50-100 Over 200

What type of risk can diversification help mitigate?

Systematic risk Market risk Unsystematic risk Inflation risk

What is a key characteristic of stocks that contribute to effective diversification?

High correlation with each other Belonging to the same industry Moving in different directions during different times Having identical price fluctuations

Why might a large mutual fund with hundreds of stocks underperform market indexes?

High management fees Difficulty in concentrating on the best investment opportunities Lack of diversification Excessive focus on short-term gains

What is a potential downside of having a widely diversified mutual fund portfolio?

Increased exposure to market risk Higher likelihood of significant losses Reduced potential for substantial gains Greater complexity in tracking individual stock performance