Choose wisely. There is only one correct answer to each question.
0%
Keep studying!
Review your answers below to learn more.
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.
The concept of portfolio weighting refers to _______.
The percentage of your portfolio that each stock occupies. The percentage is where the weighting comes in.
3.
You can increase your odds of beating the stock market index performance by _______.
Holding fewer than 20 stocks in your portfolio. If you hold a diversified portfolio, on average you should expect to achieve a market rate of return. By holding a concentrated portfolio you increase your chances of obtaining a better return than the market, but at the same time, you also increase your risk of obtaining a lower rate of return than the market.
4.
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.
5.
If your circle of competence in investing is within the software industry, then it is a good idea to have all the stocks you own be in the software industry.
False. Having your portfolio fully weighted in one industry can expose it to a lot of risk.
6.
Unsystematic risk can be diversified away by _______.
Holding a larger number of stocks. Unsystematic risk is the risk involved in holding individual companies. It can be diversified away by holding a larger number of stocks.
