Final answer:
It is false to include only investments that exhibit a high positive correlation when compiling a diversified portfolio because doing so could amplify risks. Diversification is crucial for risk mitigation. Historically, high-risk and highly correlated portfolios have been vulnerable during market downturns.
Step-by-step explanation:
When compiling a portfolio, it is generally not advisable to only include investments that exhibit a high positive correlation. A high positive correlation between assets means that they tend to move in the same direction at the same time. This could amplify risks because if one asset class undergoes a downturn, others are likely to follow, potentially leading to larger overall losses. Diversification, which involves selecting investments with varying degrees of correlation, is essential for mitigating risk and protecting against market volatility. True or False: A positive correlation means there are health benefits to the variable under investigation is a false assertion when discussing financial portfolios.
Throughout history, a high risk level has often proven to be detrimental to an investment portfolio, particularly during market downturns or financial crises. Without proper diversification, portfolios with high-risk, highly correlated assets can suffer significant losses.
A diversified savings and investing portfolio does not ensure economic success, but it can spread out risk and potentially improve the likelihood of achieving more stable returns over time. Monitoring a portfolio and staying informed about current events and company actions, as opposed to random selections with no follow-up, generally leads to better-managed risk and potentially better performance at the end of the year.
As for index funds, they are a type of investment fund or exchange-traded fund that aims to replicate the movements of an index of a specific financial market, providing diversification across the entire index. Housing and other tangible assets are indeed forms of financial investment that can provide returns in the form of capital gains and, in the case of housing, a nonfinancial return by serving as a place to live.