Which of the following reflects the concept of diversification in investing?

The concept of diversification in investing is best demonstrated by owning various asset classes to reduce risk. Diversification involves spreading investments across different financial instruments, industries, and other categories to minimize the impact of any single investment's poor performance on the overall portfolio. By holding a mix of assets — such as stocks, bonds, real estate, and commodities — an investor can achieve a balance that helps cushion against volatility, as losses in one area may be offset by gains in another. This strategy aims to enhance the potential for returns while reducing the overall risk profile of the investment portfolio.

In contrast, investing heavily in a single asset increases exposure to risk associated with that asset's performance. Measuring the volatility of an asset focuses on assessing the risk of price fluctuations for individual investments but does not address the broader strategy of risk management through diversification. Monitoring direct costs only pertains to the expenses related to investment management and does not incorporate the principles of risk distribution across different asset classes.