Choose wisely. There is only one correct answer to each question.
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1.
Fickle investors sabotage their investment returns by _______.
Buying funds when they are hot and selling them when they turn cold. Fickle investors buy what's hot and sell what's not. Dollar-cost-averaging investors invest a little at a time.
2.
For the average investor, an alternative to chasing funds for the next big performer is to do regular _______ of your portfolio.
Rebalancing. With rebalancing, you can add or remove holdings based on how they perform. That is an alternative to chasing after the latest hot funds.
3.
Which fund types often treat fickle investors the worst?
Sector- and region-specific funds. Investors suffer most with volatile sector and regional funds, in which volatility and temptation are highest.
4.
If you are afraid of becoming a fickle investor, you should _______.
Dollar-cost average into funds. Investing a little at a time by setting up a regular dollar-cost-averaging program will prevent you from becoming a fickle investor.
5.
If you have new money to invest and you want to invest in a volatile fund, a wise advisor would most likely say _______.
Invest a little at a time. Discipline pays with volatile funds, so unless you can guarantee that you won't give in to the temptation to sell when the fund stalls, it might be better to ease into it by dollar-cost averaging.
