Question

If your portfolio currently consists of common stock in three companies, you could increase your diversification by all of the following except

A) selling one of the companies and putting the money in a bond.
B) selling one of the companies and putting the money in a REIT.
C) buying another stock.
D) selling one of the companies and putting the money in the other two

Answer 1

To increase diversification in your portfolio, you can consider selling one of the companies and putting the money in a bond, a REIT, or buying another stock. Selling one company and putting the money in the other two would not increase diversification.

Step-by-step explanation:

Diversification in an investment portfolio helps to reduce risk by spreading investments across different assets. So, to increase diversification, you could consider any of the following options:

1. Selling one of the companies and putting the money in a bond: This option allows you to diversify by adding a fixed-income asset, which can provide stability and income.
2. Selling one of the companies and putting the money in a REIT: This option allows you to invest in real estate, which is a different asset class and can provide diversification benefits.
3. Buying another stock: Adding another stock to your portfolio from a different company can increase diversification by spreading the risk across more stocks.

Selling one of the companies and putting the money in the other two: This option does not increase diversification as you are reducing the number of companies you are invested in and concentrating your holdings in the remaining companies.