Choose wisely. There is only one correct answer to each question.
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1.
How can you limit market risk?
Invest in a variety of markets. To limit the risk of one entire market losing money, invest in a variety of markets.
2.
How can you limit company-specific risks?
Invest in a variety of stocks. To limit the operational and price risk that one company poses, invest in a variety of companies.
3.
To help you develop your investment philosophy about volatility and risk, you should check your stock prices every day.
False. Checking your stock prices every day will likely not help you develop a philosophy, although if you're fortunate, it can help you learn to tolerate daily fluctuations.
4.
Which is NOT a way that volatility can lead you to miss the forest for the trees?
Volatility may make you buy or sell a security based on your goals. Volatility can make you invest too conservatively or make an investment decision based solely on short-term performance. Either way, you're not seeing the forest (your goal) for the trees (volatility).
5.
What type of risk do investors overlook most often?
The risk of not meeting their investment goals. Investors generally notice short-term volatility that's driven by factors such as market risk. As a result, they ignore the greater threat of not meeting their goals.
