Choose wisely. There is only one correct answer to each question.
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1.
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.
2.
If an economic event affects every single stock in the country, it is likely an example of _______ risk.
Systematic. Systematic risk is the type that affects all stocks, not those of a particular company. It cannot normally be diversified away.
3.
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.
4.
By holding a concentrated portfolio, your returns will be better than the stock market _______.
Some of the time. Assuming that you are a good stock-picker, your returns should be better than the market some of the time. It would be rare to beat the market every year.
5.
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.
6.
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.
