DECA Personal Financial Literacy (PFL) Practice Exam 2025 - Free PFL Practice Questions and Study Guide

Having a diversified investment portfolio offers the significant benefit of stability during market fluctuations. Diversification involves spreading investments across a variety of asset types, sectors, or geographic regions, which helps to reduce the overall risk associated with any single investment. When one asset class performs poorly, others may perform well, balancing out the potential for loss and minimizing the impact on the overall portfolio.

This approach can provide investors with a smoother investment experience, reducing volatility and making it less likely that a downturn in one market will severely impact the total value of the portfolio. As a result, investors can enjoy more consistent returns over time, which is particularly important in the face of unpredictable market conditions.

In contrast, options that suggest maximizing risk, incurring higher management fees, or concentrating investment in a single sector like technology do not promote the same level of risk management and stability that diversification does. These approaches could lead to significant losses during downturns and are typically not recommended for long-term investment strategies.