Which term defines spreading risk over multiple investments?

The correct answer is diversification. Diversification refers to the investment strategy of spreading risk across a variety of assets or investment vehicles. By holding different types of investments, such as stocks, bonds, and real estate, an investor can reduce the impact of any single investment's poor performance on their overall portfolio. This approach helps in managing risk because different investments often react differently to the same economic event. For example, when stock prices are falling, bonds may hold value or even rise, thus balancing out portfolio losses.

Options like dollar-cost averaging focus on investing a fixed amount regularly over time to average out the purchase cost of an investment, rather than directly addressing risk across a range of investments. Amortization is a term related to the process of paying off debt over time through regular payments, not about spreading risk. Finally, liquidity refers to how quickly and easily an asset can be converted into cash without significantly affecting its price, which is a separate consideration from risk diversification. Therefore, diversification is essential for financial strategies aimed at minimizing potential losses while maximizing returns.