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Portfolios 103: How Much Risk Can You Tolerate?

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1.
To limit volatility?
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Diversify. Owning a variety of investments is the best defense against volatility.
2.
To help you develop your investment philosophy about volatility and risk, you should check your stock prices every day.
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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.
3.
How can you limit company-specific risks?
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Invest in a variety of stocks. To limit the operational and price risk that one company poses, invest in a variety of companies.
4.
What type of risk do investors focus on most often?
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Market risk. Investors generally notice short-term volatility that's driven by factors such as market risk.
5.
Learning to tolerate day-to-day gyrations in your portfolio is not helpful for dealing with risks in the longer term.
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False. Most likely, it will help you to put risk into perspective and help you tolerate longer-term risks.