Question: Which of the following is most diversified investment portfolio?
a) equal amounts of stock in General Motors, Chrysler, and Ford
b) municipal bonds issued by New York, Houston, and Chicago
c) 1-year, 5-year, and 10-year certificates of deposit
d) 100 shares of Ford stock, a Chicago municipal bond, and a 2-year certificate of deposit
Answer:
d without a doubt
D because it contains three different asset classes, stocks, bonds, and cash.
D) Is a good example of "Asset Allocation" (a poor example).
A) B) Are diversified
C) is a "laddered" investment.
D is the most diversified, because it contains three completely different types of investments: Stock, bond, and CD.
"D" of course. You can't have 3 things in the same industry or field and call that diversified. Only the last choice has that. But depending on your financial situation, the market conditions, your time horizon and risk tolerance, it doesn't always mean D is automatically the best investment.