Choose wisely. There is only one correct answer to each question.
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1.
In investing, diversifying means _______.
All of the above. All of these answer choices describe diversification.
2.
Which statement is false?
Diversification can ensure that you never lose money. You often get better short-term results as you are likely to own something that is doing well. Diversification lowers long-term volatility as different investments move in and out of favor. But diversification doesn't mean you'll never lose money.
3.
When it comes to mutual funds, you should own _______.
Maybe neither. There are no 'must-own' types of funds; assembling a portfolio of mutual funds is a matter of personal taste and personal goals. However, be aware of your options so that you can appropriately choose what you should and shouldn't own.
4.
If you want to try to limit short-term losses, buy _______.
A money market fund. Very short-term investments, such as money market funds, are generally considered the safest investments outside of an FDIC-insured deposit. Sometimes even the best-diversified portfolio loses money.
5.
What does diversifying by asset class usually mean?
Owning a mix of stocks, bonds, and cash. Owning multiple companies is diversification by investment, while owning a mix of growth, value, and international stocks is generally seen as diversification by subasset class.
