Choose wisely. There is only one correct answer to each question.
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1.
An investor with an already well-diversified portfolio might want to buy sector funds anyway. Which of the following would not be a reason for that investor to do so?
None of the above. All of these are reasons why an investor with a diversified portfolio might want to buy into sector funds anyway.
2.
Why would you want to know how diversified a sector fund is?
The fund may be highly concentrated in certain subsectors; this will affect its performance. Some subsectors are quite volatile.
3.
Which sector-fund strategy might you avoid?
Buying sector funds that are performing exceptionally well. Investors tend to buy sector funds as their performance is peaking. As a result, the average sector-fund investor doesn't do too well.
4.
If you're investing in a long-term trend, such as buying a health-care fund to play the Aging of America theme, which should you perhaps not do?
Sell the fund if it loses money in a calendar year. To play a long-term theme, you need to be a long-term investor. If you believe in the idea, you should be buying when returns are down, or investing a little bit at a time (dollar-cost averaging) regardless of whether the fund's performance is up or down.
5.
If you want to use sector funds to invest in a long-term trend, what strategy would be wise to use?
Dollar cost averaging. This is an effective way to get into a trend slowly and carefully, especially if you are fairly new at it.
