Diversification is the practice of spreading money across different investments to reach your desired asset allocation.

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Prepare for the NOCTI Financial and Investment Planning Test. Study with flashcards and multiple choice questions, each with detailed hints and explanations. Set yourself up for success!

Multiple Choice

Diversification is the practice of spreading money across different investments to reach your desired asset allocation.

Explanation:
Diversification is the practice of spreading money across different investments to reduce risk by avoiding concentration in a single asset or security. The statement aligns with that idea, describing diversification as the way to spread funds to support your portfolio’s plan. Asset allocation, meanwhile, is the target mix of broad asset classes (like stocks, bonds, cash) you aim to hold to meet your goals. So diversification is the mechanism that helps you achieve that asset allocation, making it the correct term for “spreading money across different investments.” Dollar cost averaging involves investing over time to smooth out price changes, and certification is unrelated.

Diversification is the practice of spreading money across different investments to reduce risk by avoiding concentration in a single asset or security. The statement aligns with that idea, describing diversification as the way to spread funds to support your portfolio’s plan. Asset allocation, meanwhile, is the target mix of broad asset classes (like stocks, bonds, cash) you aim to hold to meet your goals. So diversification is the mechanism that helps you achieve that asset allocation, making it the correct term for “spreading money across different investments.” Dollar cost averaging involves investing over time to smooth out price changes, and certification is unrelated.

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