Quiz: Do You Understand Diversification?
Research shows most people don’t understand how much diversifying their investments impacts their performance. We’ve created a quiz for you to see how much you know about investment diversification.
Academic research has shown that investors don’t understand diversification's impact on volatility and expected returns.
As a result, many investors are dissatisfied with a diversified portfolio, or aren’t properly diversified.
Take our quiz to find out if you know how diversification improves performance.
Do you understand what diversification does for your portfolio?
Research shows that most people don’t. A University of Colorado Boulder study found that 90% of people who took a survey on diversification answered at least half of the questions incorrectly.
We want to give you an opportunity to show what you know, so we created the quiz below. Once you take it, we’ll show you how you’ve done compared to other people.
Don’t feel bad if you don’t get a perfect score; the concept of diversification is confusing, and most people get at least one or two questions wrong. While people generally know diversification is a good thing, they’re often not sure exactly how or why.
If you’d like to read more on the research, read the original paper.
More from Betterment:
Optimizing Performance in Lower Risk Betterment Portfolios
In this methodology, we provide insight into how we optimize the performance of the lower risk bonds in Betterment's portfolios, including Smart Saver.
Displaying Performance to Shape Better Investor Behavior
Understanding your accounts’ performance can feel complicated. We’re advancing how we display performance to help answer your questions and make stronger investment decisions.
Your Portfolio vs. “The Market” – Comparing Apples to Fruit Salad
When you order fruit salad, you don’t expect it to taste like a single apple. If you’re invested in a diversified portfolio, it’s unrealistic to expect it to behave like Apple or even only U.S. stocks.
Explore your first goal
This is a great place to start—an emergency fund for life's unplanned hiccups. A safety net is a conservative portfolio.
Whether it's a long way off or just around the corner, we'll help you save for the retirement you deserve.
If you want to invest and build wealth over time, then this is the goal for you. This is an excellent goal type for unknown future needs or money you plan to pass to future generations.