Which term refers to accounts focused on a basket of securities to reduce risk?

• A. Sector-specific accounts
• B. Managed accounts
• C. Diversified accounts
• D. Multiple sector accounts

Answer: (D)

The term that best refers to accounts focused on a basket of securities to reduce risk is diversified accounts. Diversification is a fundamental principle in investing, designed to minimize potential losses by spreading investments across various financial instruments, industries, or other categories. By holding a diversified portfolio, the impact of any single security's poor performance is reduced, as losses can be offset by gains in others.

In contrast, sector-specific accounts concentrate investments within a particular industry or sector, which may increase risk rather than reduce it. Managed accounts usually refer to portfolios overseen by professional managers rather than a specific focus on reducing risk through diversification. Multiple sector accounts might imply diversification across several sectors, but this term does not specifically convey the importance of spreading investments to mitigate risk effectively.

Therefore, the concept of diversified accounts encapsulates the strategy of combining a variety of securities as a means of reducing exposure to any one investment's risk.