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.
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.
More from Betterment:
Recommended Content
View All Resources
Is Betterment Worth It? Estimating the Added Value of a Robo-Advisor
Based on our estimation, using Betterment’s retirement recommendations could earn you 38.8% more after-tax money in retirement compared to investing on your own.
Understanding Betterment’s Portfolio Strategy
Here at Betterment, we invest in low-cost, globally diversified funds. Learn more about what we invest in and what it means for your portfolio.
What’s Inside the Betterment Portfolio Strategy?
Explore the asset classes in Betterment's recommended set of portfolios. Then, take a look at the exchange-traded funds (ETFs) underlying each part of the portfolio strategy.
Explore your first goal
Safety Net
This is a great place to start—an emergency fund for life's unplanned hiccups. A safety net is a conservative portfolio.
Retirement
Whether it's a long way off or just around the corner, we'll help you save for the retirement you deserve.
General Investing
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.
Smart Saver
You could earn 20X more than a typical savings account with our low-risk investing account for your extra cash.
Explore your first step toward a better financial future
Save
Put your extra cash to work. You could earn 20X more than the average savings account with Smart Saver, our low-risk investing account.
Invest
Invest without the hassle. We manage your portfolio, offer expert allocation advice, and take care of the manual trading work.
Retire
Whether retirement is a long way off or just around the corner, we'll help you plan for the retirement you deserve.
Learn
Get answers to your questions about Betterment. We can help you become more confident with your money.