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Portfolios 103: How Much Risk Can You Tolerate?

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1.
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.
2.
How can you limit market risk?
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Invest in a variety of markets. To limit the risk of one entire market losing money, invest in a variety of markets.
3.
To limit volatility?
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Diversify. Owning a variety of investments is the best defense against volatility.
4.
Which is NOT a way that volatility can lead you to miss the forest for the trees?
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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.
To help you develop your investment philosophy about volatility and risk, there are several questions you should answer. Of the following, which one would be least helpful?
Choose wisely. There is only one correct answer.
What are your stock prices today? This question is not helpful for developing your investment philosophy.