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Behavioral Finance

Quiz: Do You Understand Diversification?

We’ve created a quiz for you to see how much you know about investment diversification.

Dan Egan

By Dan Egan
Managing Director of Behavioral Finance & Investing, Betterment  |  Published: October 22, 2015

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.

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