Answer:
To mitigate risk, investors should diversify their portfolio
Interest that accrues on the principal along with the interest already earned is called compound interest
When compared to funds allocated for acquiring a home, money invested in a CD is more liquid
Explanation:
Portfolio diversification is an investor strategy aimed at minimizing the risks associated with investment portfolios by ensuring funds are spread across different asset classes with varying risk levels.
Diversifying a portfolio implies that investments are made in assets exhibiting a negative correlation, meaning they don’t move simultaneously in the same direction with respect to returns.
Compound interest is calculated by adding the interest accumulated during the first investment period to the principal before determining the interest for subsequent periods, and this process continues.
A CD, short for Certificate of Deposit, is a financial vehicle offered by banks and other financial institutions to customers looking to invest their funds and earn interest income. Money placed in a CD is typically tied up for a specified term until maturity.
Investments in real estate usually take longer to realize compared to those in a CD,
and thus, funds invested in a CD are considered more liquid than those placed towards property acquisition.
