Portfolio Choices Many investments are part of a larger investment portfolio. This unit explored how to diversify a portfolio to help reduce overall risk. Recall the six types of diversification below:

Individual company diversification. A strong portfolio includes a mix of assets from different companies in a given industry.
Industry diversification. Consider stocks in companies from a variety of industries. This strategy includes buying assets in unfamiliar industries.
Asset class diversification. Invest in different asset classes, such as stocks, bonds, and real estate.
Strategy diversification. Diversify strategically by investing in different assets within an asset class. For example, a diverse portfolio includes stocks from small and large companies.
Geographic diversification. A specific economic region can’t give consistent results. So, invest in a mix of domestic and international stocks.
Time diversification. Invest in different options considering your investment time period and risk tolerance. For example, long-term investments are less risky and often give better returns than short-term investments.
Part A
The table lists a variety of investments, along with their purchase cost and a description of their expected gains. Note that because the cost to purchase includes fees, this cost is higher than the initial purchase amount.

Name Cost to Purchase Description of Expected Gains
1 Vanguard European Stock Index Fund $3,270.00 1 year expected growth of 15.99% on an initial purchase of $3,000
2 US Treasury Bond $612.00 2.75% annual interest for a 30-year term on a $600 purchase, compounded annually
3 Rowe Price International Bond $107.95 3.97% annual interest for a 10-year term on a $100 purchase, compounded annually
4 Adidas AG shares $122.11 1 year expected growth of 2.64% on an initial purchase of $115.11
5 Vanguard Developed Markets Index Fund Admiral Shares $10,250.00 1 year expected growth of 15.95% on an initial purchase of $10,000
6 Twenty-First Century Fox Inc. shares $807.50 expected growth of 12.90% over 3 years on an initial purchase of $800
7 Alibaba Group Holdings Ltd. shares $3,100.00 15% expected return for a 10-year period on an initial purchase of $2,833
8 Fidelity Blue Chip Growth Fund $10,015.00 5% expected growth for a 1-year period at an initial purchase of $10,000
9 The Investment Company of America shares $42.72 10 year expected return of 7.92% on an initial purchase of $35
10 Vanguard Small-Cap Index Fund Admiral Shares $10,660.00 1 year expected growth of 14.13% on an initial purchase $10,000
Create a diversified portfolio using the information in the table. As you do so, keep these points in mind:

It may be helpful to research any unfamiliar investments to determine their type.
For the pretax expected return, you are computing a simplified estimate because the description of expected gains is an approximation and not an exact prediction.
When computing the pretax expected return for your bond choice, you may find it helpful to refer to the compound interest formula.
Compute the pretax expected returns based on the time frames provided in the description.