This question will require the group to research diversification – how it is implemented in a portfolio and how it assists in providing more stable returns to the investor.
Due to a lack of financial resources, individual investors often overlook the benefits attached to diversification on the basis that they believe that these benefits are not available to them.
a.How would you explain the concept of diversification and the type(s) of risk it helps reduce, to someone who has little knowledge of finance?
b.Using an appropriate example, explain the process of how different investments are chosen in order to achieve a diversified portfolio.
c.Why has there been an increased popularity for investors to place their funds with fund managers adopting passive portfolio management strategies in more recent years? Your discussion must be based on the Australian or international economic / financial environment.