Financial Knowledge Assessment: Q11A

11. True or False: Buying shares of a specific company is generally a safer investment than buying shares of a mutual fund.

  • True.
  • False.

Explanation:  The correct answer is “False.”  Investing all of your money in one company has more risk than investing in a mutual fund that holds shares of many companies.  This investment strategy is called diversification.  Diversification means investing your money in many different companies that span a variety of industries.  That way, if one particular industry like Technology has a down year, your investments related to Energy, Finance, or Retail could help balance your losses.  Mutual funds practice this strategy.  Mutual funds come in many different shapes and sizes, but the attribute they share in common is that they generally have much less risk for the individual investor.

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