Choose wisely. There is only one correct answer to each question.
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1.
Instead of asking whether stocks or mutual funds would be better to have in your portfolio, a more strategic question might be, _______.
How can my portfolio benefit the most from each of these investments? Though you may ultimately decide to stick with either, you should ask the question anyway. You may be surprised at the answer.
2.
How many stocks do you need to own in your portfolio to derive 90% of the benefits from diversification?
12 to 18. Ninety percent of the benefits of diversification are achieved by holding 12 to 18 stocks.
3.
Portfolio weighting is all about what percentage of your portfolio each stock occupies.
True. As such, it adds a new dimension to your portfolio and can potentially enhance returns.
4.
An advantage of investing within your circle of competence is that it is fairly easy to find companies to invest in.
True. When you know an industry, it is usually fairly easy to evaluate potential investments in it.
5.
If you want to buy the stock of a certain company but you find out its product is the target of frequent lawsuits, you are looking at what kind of risk?
Unsystematic. This is the unique risk of the company that can be offset through diversification.
6.
Which number of stocks in a portfolio is the most likely to let you outperform the market?
15. There is an optimum range of stocks, and it is 12 to 20.
