A diverse portfolio allows for what due to investment and business cycles?

Prepare for the BOMI Asset Management Test with flashcards and multiple choice questions. Each question includes helpful hints and detailed explanations. Ensure success in your exam!

A diverse portfolio provides the benefit of offsetting losses with gains in other investments, which is particularly important during varying investment and business cycles. The core principle of diversification is to spread investments across different asset classes or sectors, which can react differently under various economic conditions.

For instance, when one sector experiences a downturn due to an economic recession or market shift, another sector may be thriving or stable, thereby cushioning the overall impact on the portfolio. This balance helps in managing risk and can lead to more stable returns over time, as the negative performance of some investments can be countered by the positive performance of others. By having a mix of investment types, an investor can achieve a smoother return trajectory and reduce the overall volatility of the portfolio.

The other options do not align as directly with the benefits of a diverse portfolio in the context of managing different cycles. Consistency in gains isn't guaranteed, as investments will fluctuate. While extra time to analyze each investment can be beneficial, it is not a direct advantage of having a diverse portfolio. Higher risk investments carry inherent risk regardless of the business cycle and are not a direct benefit of diversification.

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