Diversification — Social Studies definition
Spreading exposures to reduce certain concentration risks.
Where it is taught
- Saving, Investing, Compounding & Risk — Household Finance & Major Decisions, Government, Civic Participation & Economics, Grade 12
In use
Diversification spreads exposures and can reduce some concentration risk without eliminating all losses.
Saving, Investing, Compounding & Risk
Questions using diversification
Problem 1
Does diversification guarantee no loss?
Answer and explanation
No. It can reduce some concentration risks, while common market changes, liquidity, credit, inflation, or fees can still matter. Explain exposures and conditions rather than treating the number of holdings as a guarantee.
Response criteria
- Explain the relevant institution or economic concept accurately; show correct calculations where needed.
- Connect supplied evidence and stated assumptions to an explained conclusion.
- Compare feasible options and their effects on different people without stereotypes.
- Identify a limitation, tradeoff, uncertainty, or condition that qualifies the conclusion.