Elena is excited to invest, but she is worried that she might lose her investment funds by making risky investments. How could Elena use diversification to manage her risk?(1 point)
Responses
Elena could forego investing altogether.
Elena could forego investing altogether.
Elena could purchase multiple assets from multiple sources.
Elena could purchase multiple assets from multiple sources.
Elena could invest all of her funds into a single low-risk investment.
Elena could invest all of her funds into a single low-risk investment.
Elena could invest some of her funds into a single low-risk investment and pocket the rest as cash.
Elena could purchase multiple assets from multiple sources would be the correct response.
Elena could purchase multiple assets from multiple sources.
The correct answer is: Elena could purchase multiple assets from multiple sources.
Explanation: Diversification is a risk management strategy that involves spreading investments across different assets or sources in order to reduce the overall risk. By investing in multiple assets from different sources, Elena can minimize the impact of any potential losses from a single investment. This way, if one investment performs poorly, it may be offset by the others that perform well. Therefore, diversifying her investments helps Elena manage her risk and increase the likelihood of achieving more stable returns.